Material Management
MGMT 422
WEEKS 11 & 12 REVIEW QUESTIONS
INSTRUCTIONS: CIRCLE THE ANSWER THAT BEST FITS THE QUESTION
CHAPTER 14
1. Once a contract has been negotiated and signed, the real work is over.
| a. | True | |
| b. | False |
2. It is easy to go back and negotiate what contractual terms actually mean once the contract has been signed and a period of time has passed.
| a. | True | |
| b. | False |
3. It is always a good idea to double-check all attachments to the contract, because many of the technical details are included here.
| a. | True | |
| b. | False |
4. In the firm fixed price contract, the price stated in the agreement does not change, regardless of fluctuations in general overall economic conditions, industry competition, levels of supply, market prices, or other environmental changes.
| a. | True | |
| b. | False |
5. In a fixed price contract with escalation, all price changes should be keyed to a third-party price index, preferably to a well-established, widely published index.
| a. | True | |
| b. | False |
6. There is an incentive, at least in the short run, for suppliers to be inefficient in cost-based contracts because they are rewarded with higher prices.
| a. | True | |
| b. | False |
7. To be most effective, cost-based contracts should include cost productivity improvements in order to drive continuous cost reduction over the life of the contract.
| a. | True | |
| b. | False |
8. Even when there is no contract, most transactions are covered by a “gap filler” known as the Uniform Commercial Code.
| a. | True | |
| b. | False |
9. Generally speaking, the more complex the nature of the contract and the greater the dollar amounts involved, the more likely it is that a future dispute over interpretation of the terms and conditions will occur.
| a. | True | |
| b. | False |
10. Taking a dispute into the jurisprudence system should be an automatic step in resolving the dispute, and not viewed as a last resort.
| a. | True | |
| b. | False |
11. The _____ clause of a contract defines all of the important terms contained within the contract and is important so everyone understands exactly what each term means.
| a. | supply and delivery | |
| b. | specifications, quality, and health, safety, environment | |
| c. | scope of agreement | |
| d. | force majeure | |
| e. | definitions |
12. The _____ clause of a contract specifies method of manufacture and quality requirements and may include language specific to terms of quality.
| a. | liability | |
| b. | specifications, quality, and health, safety, environment | |
| c. | intellectual property | |
| d. | assignment and contracting | |
| e. | confidentiality |
13. The _____ clause of a contract generally specifies who is responsible if there are injuries or damage, over the course of the contract, and any damages to be paid.
| a. | supply and delivery | |
| b. | key performance indicators and compensation | |
| c. | definitions | |
| d. | free trade areas | |
| e. | liability |
14. The _____ clause of a contract stipulates whether either party has the ability to terminate the contract at any time, and how much advance notice must be given.
| a. | effective date and termination | |
| b. | payment | |
| c. | third-party rights | |
| d. | most favored customer | |
| e. | force majeure |
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15. The _____ clause in a contract ensures that all information, technology, and so on shared between the parties remains confidential and is not shared with other customers or suppliers.
| a. | assignment and contracting | |
| b. | liability | |
| c. | third-party rights | |
| d. | confidentiality | |
| e. | intellectual property
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16. The most basic contractual pricing mechanism is called a/an _____ contract.
| a. | fixed price with escalation | |
| b. | cost plus incentive fee | |
| c. | firm fixed price | |
| d. | cost-sharing | |
| e. | fixed price with redetermination |
17. In the _____ contract, if the supplier can demonstrate actual cost savings through production efficiencies or substitution of materials, the resulting savings from the initial price targets are shared between the supplier and the purchaser at a predetermined rate.
| a. | time and materials | |
| b. | cost plus fixed fee | |
| c. | fixed-price with incentives | |
| d. | firm fixed price | |
| e. | fixed-price with escalation |
18. The _____ contract is generally used in plant and equipment maintenance agreements, where the supplier cannot determine accurate costs prior to the repair service.
| a. | fixed-price with redetermination | |
| b. | firm fixed price | |
| c. | cost-sharing | |
| d. | time and materials | |
| e. | cost plus fixed-fee |
19. The _____ the term of the purchase agreement, the _____ firm fixed-price contracts will be acceptable to the supplier.
| a. | shorter….less likely | |
| b. | longer….more likely | |
| c. | longer….less likely | |
| d. | longer….same likelihood that | |
| e. | There is no relationship between contract term and acceptability to the supplier. |
20. _____ is defined as the submission of a disagreement to one or more impartial persons with the understanding that the parties will abide by the decision.
| a. | Negotiation | |
| b. | Arbitration | |
| c. | Litigation | |
| d. | Mediation | |
| e. | Authorization |
CHAPTER 15
1. Purchasing activities are concerned with the laws regarding contracts and the laws regarding agency, the majority of which concern contract laws.
| a. | True | |
| b. | False |
2. The purchasing agent is a general agent with broad authority to change prices, terms, and conditions.
| a. | True | |
| b. | False |
3. From a legal perspective, purchasing managers do not have a fiduciary obligation to act in the best interests of their employer.
| a. | True | |
| b. | False |
4. Exceeding both actual and apparent authority can have dire consequences; an individual may be held directly liable by the supplier or other third party.
| a. | True | |
| b. | False |
5. Accepting gifts and favors from a supplier is the most common ethical infraction involving buyers.
| a. | True | |
| b. | False |
6. A contract can exist only when there is an agreement resulting from both an offer and an acceptance.
| a. | True | |
| b. | False |
7. If the primary purpose of the contract is legal, but some terms contained within the contract are not, then the contract may or may not itself be illegal depending on the seriousness of the illegal terms and the degree to which the legal and illegal terms can be separated.
| a. | True | |
| b. | False |
8. A breach of contract may entitle the offended party to certain remedies or damages.
| a. | True | |
| b. | False |
| ANSWER: | True |
9. In order for a firm to recover lost profits in a breach of contract, the firm must produce credible evidence that it would have made such profits.
| a. | True | |
| b. | False |
10. For the most part, the UCC is a “gap filler” and is only pertinent if the parties themselves do not supply a contract term, or the term is left open.
| a. | True | |
| b. | False |
11. A/An _____ is a set of promises between two or more parties the performance of which the law expects, the breach of which the law provides remedies.
| a. | offer | |
| b. | agreement | |
| c. | acceptance | |
| d. | contract | |
| e. | breach |
12. _____ is the idea that organizations and institutions have an obligation to society that extends beyond compliance with regulations in considering the broader effects of their actions.
| a. | Ethics | |
| b. | Influence | |
| c. | Corporate social responsibility | |
| d. | Mutual assent | |
| e. | Warranty of infringement |
13. Which of the following is false regarding the risks of unethical behavior by a purchaser?
| a. | The buyer pays too little for a purchased good or service. | |
| b. | Unethical behavior presents a personal risk to a buyer’s reputation. | |
| c. | buyer who performs an unethical act runs the risk that the act is also illegal. | |
| d. | Sellers quickly become aware of buyers who are open to offers “on the side.” | |
| e. | A buyer who makes purchase decisions based on factors other than legitimate business criteria risks the reputation of the entire firm. |
14. _____ indicates that the supplier is responsible for transportation, and the purchaser assumes title of the goods at his or her own shipping dock.
| a. | F.O.B. origin | |
| b. | F.O.B. shipping point | |
| c. | F.O.B. destination | |
| d. | F.O.B. carrier | |
| e. | None of the above. |
15. _____ indicates that the purchaser is responsible for payment of transportation costs and assumes title of the goods at the supplier’s shipping dock.
| a. | F.O.B. origin | |
| b. | F.O.B. delivered | |
| c. | F.O.B. carrier | |
| d. | F.O.B. intermediate storage point | |
| e. | F.O.B. destination |
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16. [The] _____ refers to the supplier’s guarantee that the goods being exchanged do not illegally violate another party’s patent protection.
| a. | Warranty of title | |
| b. | Express warranty | |
| c. | Warranty of infringement | |
| d. | Implied warranty of fitness for use | |
| e. | Implied warranty of merchantability |
17. In its most basic form, a _____ is defined as a promise or representation made by the seller, which, if necessary, can be legally enforced.
| a. | statement of fact | |
| b. | verbal agreement | |
| c. | verbal agreement | |
| d. | warranty | |
| e. | buyer’s right of rejection |
18. _____ are those expenses incurred by the purchaser because the goods were not delivered when expected or as specified.
| a. | Incidental damages | |
| b. | General damages | |
| c. | Consequential damages | |
| d. | Specific damages | |
| e. | None of the above. |
19. _____ occur[s] when either party fails to perform the obligations due under the contract (without a valid or legal justification).
| a. | Damages | |
| b. | Cancellation | |
| c. | Restitution | |
| d. | Expectancy | |
| e. | Breach of contract |
20. _____ is something of value in the formation of the contract that gives it legal validity.
| a. | Apparent authority | |
| b. | Actual authority | |
| c. | Implied authority | |
| d. | Acceptance | |
| e. | Consideration |
1. According to Shook, lean is a philosophy that seeks to shorten the time between when the customer order and the shipment to the customer by eliminating waste.
| a. | True | |
| b. | False |
2. In a pull system, an upstream work center or operation will create output regardless whether a downstream center directly requests that output.
| a. | True | |
| b. | False |
3. When firms produce goods in anticipation of future customer orders, they are operating in a just-in-time environment.
| a. | True | |
| b. | False |
4. The most basic and the easiest inventory-related cost to quantify and track is unit cost.
| a. | True | |
| b. | False |
5. It is often difficult to quantify the total costs associated with ordering and carrying physical inventory.
| a. | True | |
| b. | False |
6. Unnecessary inventory usually results from one thing: uncertainty.
| a. | True | |
| b. | False |
7. A major step toward eliminating delivery uncertainty is a commitment to stable release schedules with realistic (but not overly generous) supplier lead times.
| a. | True | |
| b. | False |
8. The ability to plan material requirements accurately increases as order-cycle time lengthens.
| a. | True | |
| b. | False |
9. The underlying emphases of lean– to eliminate all forms of uncertainty and waste – are relevant to all organizations, regardless of the specific planning and control tools that are used.
| a. | True | |
| b. | False |
10. The advantage of consignment to the buyer is the ability to defer ownership and avoid committing working capital and incurring carrying charges.
| a. | True | |
| b. | False |
11. All of the following action support reduced order-cycle time with suppliers except _____.
| a. | expanded global sourcing | |
| b. | expanded electronic capability | |
| c. | supplier development support | |
| d. | order-cycle time measurement | |
| e. | focus on second- and third-tier suppliers |
12. According to the APICS Dictionary, _____ is defined as the process of a supplier placing goods at a customer location without receiving payment until after the buyer uses the goods.
| a. | Kanban | |
| b. | Just-in-time | |
| c. | Consignment | |
| d. | MRO | |
| e. | None of the above. |
13. The downside of poor forecasting includes all of the following except _____.
| a. | higher inventory volumes | |
| b. | poor customer service as inventory is misallocated across locations and products | |
| c. | higher inventory carrying charges | |
| d. | excessive safety stock levels | |
| e. | decreased customer service costs |
14. A _____ system is a production control approach that uses containers, cards, or visual cues to control the production and movement of goods through the supply chain.
| a. | MRP | |
| b. | DRP | |
| c. | lean supply | |
| d. | JIT kanban | |
| e. | lean transportation |
15. _____ involves frequent deliveries of smaller quantities directly to the point of use at the purchaser.
| a. | Lean supply | |
| b. | Lean transportation | |
| c. | Lean warehousing | |
| d. | Lean ordering | |
| e. | None of the above. |
16. Which of the following is not one of the key principles of the lean concept?
| a. | Maximize the use of people. | |
| b. | Simplify first, and only then apply new technology. | |
| c. | Focus on gradual, but continuous, improvement. | |
| d. | Minimize waste (including poor quality). | |
| e. | None of the above. |
17. All of the following are considered to be the right reasons for investing in inventory except _____.
| a. | avoid disruptions in operational performance | |
| b. | Unreliable supplier delivery | |
| c. | support customer service requirements | |
| d. | hedge against marketplace uncertainty | |
| e. | take advantage of order quantity discounts |
18. _____ are calculated as Average Inventory in Units x Unit Price x Carrying Cost per Year.
| a. | Quality costs | |
| b. | Ordering costs | |
| c. | Inventory carrying costs | |
| d. | MRO costs | |
| e. | Cycle counting costs |
19. _____ inventory includes the items used to support production and operations and are not physically part of a finished product.
| a. | Raw materials | |
| b. | WIP | |
| c. | Semifinished items | |
| d. | MRO | |
| e. | Pipeline/in-transit |
20. When firms produce goods in anticipation of future customer orders, they are operating in a/an _____ environment.
| a. | assemble-to-order | |
| b. | make-to-order | |
| c. | make-to-stock | |
| d. | just-in-time | |
| e. | None of the above. |
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