MGSC 487 - Exam 2 Questions with Correct Answers Latest Update 2026/2027
What is fair price? - Answers Lowest price that assures continuous supply of proper quality
where and when it is needed
Continuous supply is only possible: - Answers in the long run only from a supplier who is making
a reasonable profit
Accuracy in making the judgment for fair and just price depends on: - Answers Past experience,
knowledge of production processes, costs of production processes, logistics costs
Direct costs - Answers Can be specifically and accurately assigned to a given unit of production
Indirect costs - Answers incurred in the operation of a production plant or process, but normally
cannot be related to any given unit of production. Often referred to as 'overhead' and includes
rent, machine depreciation, and general supervisors
Semi variable costs - Answers may vary with the number of units products are partly variable
and partly fixed
Fixed Costs - Answers remain the same regardless of the number of units products EX. Real
estate tax
Costs - Answers dollars and cents per unit based on an average cost of raw material over a
period of time, direct labor costs, and estimated volume of production over a period of time on
which the distribution of overhead is based
Cost Approach - Answers -Price is a certain amount over direct costs and allows contribution to
cover indirect costs and some profit
In Cost approach costs are classified as: - Answers variable, semi variable, and fixed
What is Market Approach - Answers Prices are set in the marketplace and are expected to
follow a supply and demand model
Market approach follows the - Answers supply and demand model (supply high, cost low)
(supply low, cost high)
In market approach, how can you find a way to make your costs less? - Answers select suppliers
who have other incentives, substitute "like" materials, outsource (or insource), establish long-
term contracts
How can government set prices? - Answers production and import quotas
regulating buyer and seller behavior
set prices for government run organizations
, What does Sherman Anti-Trust Act (1890) deem illegal? - Answers price fixing
Price Fixing - Answers the maintaining of prices at a certain level by agreement between
competing sellers.
What does the Robinson Patman Act (1936) deem illegal: - Answers sell to different customers
at different prices
Exceptions to Robinson Patman Act - Answers large purchase quantity, moving obsolete
material, meeting local competition
Government purchase must: - Answers be made to the lowest responsible and responsive
bidder
Firm Fixed Price (FFP) - Answers price set is not subject to change, under any circumstances.
Cost Plus Fixed Fee (CPFF) - Answers Occurs if item is experimental and specifications are not
firm, or if costs in the future cannot be predicted.
Cost No Fee (CNF) - Answers Only the costs are returned. If the buyer can argue persuasively
that there will be enough subsidiary benefits to the supplier from doing a particular job, then, the
supplier, may be willing to do it provided the costs are reimbursed.
Cost Plus Incentive Fee (CPIF) - Answers Both buyer and seller agree on a target cost figure, a
fixed fee, and a formula under which any cost over or underruns are shared.
Price - Answers what you agree to pay
Cost - Answers what you will continue to pay (ex. maintenance, insurance, accessories)
How can you Internally manage cost - Answers process improvement, supply chain efficiencies
How can you externally manage costs - Answers negotiation, strategic cost management
Strategic cost management - Answers Externally focused process of analyizing costs in terms
of overall value chain
Strategic cost management focuses on - Answers year over year cost savings
2 primary tools of Strategic cost mgmt: - Answers ABC Analysis
Portfolio Analysis
ABC Analysis (Pareto Analysis) - Answers Dividing total Spend into broad categories
"A"= High $, low % of product
"B"= Medium $, medium % of product
What is fair price? - Answers Lowest price that assures continuous supply of proper quality
where and when it is needed
Continuous supply is only possible: - Answers in the long run only from a supplier who is making
a reasonable profit
Accuracy in making the judgment for fair and just price depends on: - Answers Past experience,
knowledge of production processes, costs of production processes, logistics costs
Direct costs - Answers Can be specifically and accurately assigned to a given unit of production
Indirect costs - Answers incurred in the operation of a production plant or process, but normally
cannot be related to any given unit of production. Often referred to as 'overhead' and includes
rent, machine depreciation, and general supervisors
Semi variable costs - Answers may vary with the number of units products are partly variable
and partly fixed
Fixed Costs - Answers remain the same regardless of the number of units products EX. Real
estate tax
Costs - Answers dollars and cents per unit based on an average cost of raw material over a
period of time, direct labor costs, and estimated volume of production over a period of time on
which the distribution of overhead is based
Cost Approach - Answers -Price is a certain amount over direct costs and allows contribution to
cover indirect costs and some profit
In Cost approach costs are classified as: - Answers variable, semi variable, and fixed
What is Market Approach - Answers Prices are set in the marketplace and are expected to
follow a supply and demand model
Market approach follows the - Answers supply and demand model (supply high, cost low)
(supply low, cost high)
In market approach, how can you find a way to make your costs less? - Answers select suppliers
who have other incentives, substitute "like" materials, outsource (or insource), establish long-
term contracts
How can government set prices? - Answers production and import quotas
regulating buyer and seller behavior
set prices for government run organizations
, What does Sherman Anti-Trust Act (1890) deem illegal? - Answers price fixing
Price Fixing - Answers the maintaining of prices at a certain level by agreement between
competing sellers.
What does the Robinson Patman Act (1936) deem illegal: - Answers sell to different customers
at different prices
Exceptions to Robinson Patman Act - Answers large purchase quantity, moving obsolete
material, meeting local competition
Government purchase must: - Answers be made to the lowest responsible and responsive
bidder
Firm Fixed Price (FFP) - Answers price set is not subject to change, under any circumstances.
Cost Plus Fixed Fee (CPFF) - Answers Occurs if item is experimental and specifications are not
firm, or if costs in the future cannot be predicted.
Cost No Fee (CNF) - Answers Only the costs are returned. If the buyer can argue persuasively
that there will be enough subsidiary benefits to the supplier from doing a particular job, then, the
supplier, may be willing to do it provided the costs are reimbursed.
Cost Plus Incentive Fee (CPIF) - Answers Both buyer and seller agree on a target cost figure, a
fixed fee, and a formula under which any cost over or underruns are shared.
Price - Answers what you agree to pay
Cost - Answers what you will continue to pay (ex. maintenance, insurance, accessories)
How can you Internally manage cost - Answers process improvement, supply chain efficiencies
How can you externally manage costs - Answers negotiation, strategic cost management
Strategic cost management - Answers Externally focused process of analyizing costs in terms
of overall value chain
Strategic cost management focuses on - Answers year over year cost savings
2 primary tools of Strategic cost mgmt: - Answers ABC Analysis
Portfolio Analysis
ABC Analysis (Pareto Analysis) - Answers Dividing total Spend into broad categories
"A"= High $, low % of product
"B"= Medium $, medium % of product
