1|Page
SCMN 3730 EXAM 1 LATEST WITH ACTUAL
QUESTIONS AND CORRECT VERIFIED ANSWERS
ALREADY GRADED A+ 100% GUARANTEED
PASS!
Obstacles of complete contracts - .....ANSWER ...✔✔
- high transaction costs
- high enforcement (or verification) costs
Principle-agent problem - .....ANSWER ...✔✔ When
the agent (worker or manager) doesn't act in the best
interest of the principle (owner).
Principal - .....ANSWER ...✔✔ Person whom the action
affects
Agent - .....ANSWER ...✔✔ Person who acts
Agency Relationship - .....ANSWER ...✔✔ One
person's welfare depends on what another person does
,2|Page
Firm-Fixed Price Contract - .....ANSWER ...✔✔ -Price
stated does not change
-Most basic and easiest contractual mechanism
-Supplier bears financial risk in a risking market
-Buyer assumes financial risk in a declining market
Fixed-Price with Escalation Contact - .....ANSWER
...✔✔ -Used for longer-term contacts where costs are
likely to increase
-Escalation clauses allow either price increase or
decrease
-Should be tied to an independent, published third-
party index
Fixed-Price with Redetermination Contract - .....ANSWER
...✔✔ -Used when parties cannot accurately predict
costs and quantities
-Base price is determined using "best guess" estimates
-At a predetermined future time, buyer and seller
review actual experience and adjust price
Fixed-Price with Incentitives - .....ANSWER ...✔✔ -
Terms and conditions allow cost-savings sharing with
supplier
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-Similar to fixed-price with redetermination contract
-Typically utilized under conditions of high unit cost and
relatively long lead times
Cost Plus Incentive Fee Contact - .....ANSWER ...✔✔ -
Similar to fixed-price plus incentive except incentive is
based on changes in allowable costs
-May include cost-savings sharing at a predetermined
rate
-Appropriate when parties are confident of initial target
cost
Cost-Sharing Contract - .....ANSWER ...✔✔ -Costs are
shared between parties on a predetermined basis
-Key is identification of operating guidelines, goals, and
objectives
-Need to spell out expectations clearly
Time and Materials Contract - .....ANSWER ...✔✔ -
Generally used in plant and equipment maintenance
agreements
-Costs cannot be determined prior to the actual repair
-Based on an agreed upon labor rate
-Requires a "not to exceed" amount
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Cost Plus Fixed-Fee - .....ANSWER ...✔✔ -Supplier
receives reimbursement for all allowable costs up to a
predetermined amount, plus a fixed fee
-Fixed fee represents a percentage of the targeted cost
-Supplier is guaranteed a minimal level of profit
-Little motivation to control costs
Types of Fixed Price Contracts - .....ANSWER ...✔✔ -
Firm fixed price
- Fixed-price contract with escalation
- Fixed-price contract with redetermination
- Fixed-price contract with incentives
Types of Cost Based Contracts - .....ANSWER ...✔✔ -
cost plus incentive fee
-cost sharing
-time and materials contract
-cost plus fixed fee
Benefits of fixed-price contracts - .....ANSWER ...✔✔
-Easiest contractual mechanism
-Predictable scenario
SCMN 3730 EXAM 1 LATEST WITH ACTUAL
QUESTIONS AND CORRECT VERIFIED ANSWERS
ALREADY GRADED A+ 100% GUARANTEED
PASS!
Obstacles of complete contracts - .....ANSWER ...✔✔
- high transaction costs
- high enforcement (or verification) costs
Principle-agent problem - .....ANSWER ...✔✔ When
the agent (worker or manager) doesn't act in the best
interest of the principle (owner).
Principal - .....ANSWER ...✔✔ Person whom the action
affects
Agent - .....ANSWER ...✔✔ Person who acts
Agency Relationship - .....ANSWER ...✔✔ One
person's welfare depends on what another person does
,2|Page
Firm-Fixed Price Contract - .....ANSWER ...✔✔ -Price
stated does not change
-Most basic and easiest contractual mechanism
-Supplier bears financial risk in a risking market
-Buyer assumes financial risk in a declining market
Fixed-Price with Escalation Contact - .....ANSWER
...✔✔ -Used for longer-term contacts where costs are
likely to increase
-Escalation clauses allow either price increase or
decrease
-Should be tied to an independent, published third-
party index
Fixed-Price with Redetermination Contract - .....ANSWER
...✔✔ -Used when parties cannot accurately predict
costs and quantities
-Base price is determined using "best guess" estimates
-At a predetermined future time, buyer and seller
review actual experience and adjust price
Fixed-Price with Incentitives - .....ANSWER ...✔✔ -
Terms and conditions allow cost-savings sharing with
supplier
,3|Page
-Similar to fixed-price with redetermination contract
-Typically utilized under conditions of high unit cost and
relatively long lead times
Cost Plus Incentive Fee Contact - .....ANSWER ...✔✔ -
Similar to fixed-price plus incentive except incentive is
based on changes in allowable costs
-May include cost-savings sharing at a predetermined
rate
-Appropriate when parties are confident of initial target
cost
Cost-Sharing Contract - .....ANSWER ...✔✔ -Costs are
shared between parties on a predetermined basis
-Key is identification of operating guidelines, goals, and
objectives
-Need to spell out expectations clearly
Time and Materials Contract - .....ANSWER ...✔✔ -
Generally used in plant and equipment maintenance
agreements
-Costs cannot be determined prior to the actual repair
-Based on an agreed upon labor rate
-Requires a "not to exceed" amount
, 4|Page
Cost Plus Fixed-Fee - .....ANSWER ...✔✔ -Supplier
receives reimbursement for all allowable costs up to a
predetermined amount, plus a fixed fee
-Fixed fee represents a percentage of the targeted cost
-Supplier is guaranteed a minimal level of profit
-Little motivation to control costs
Types of Fixed Price Contracts - .....ANSWER ...✔✔ -
Firm fixed price
- Fixed-price contract with escalation
- Fixed-price contract with redetermination
- Fixed-price contract with incentives
Types of Cost Based Contracts - .....ANSWER ...✔✔ -
cost plus incentive fee
-cost sharing
-time and materials contract
-cost plus fixed fee
Benefits of fixed-price contracts - .....ANSWER ...✔✔
-Easiest contractual mechanism
-Predictable scenario
