Which of the Following Statements Regarding Cost-Savings Sharing Is False

question 48

Multiple Choice

Which of the following statements regarding cost-savings sharing is false?

• A) Cost-savings sharing approaches require joint identification of the full cost to produce an item.
• B) Profit is a function of the productive investment committed to the purchased item and a supplier's asset return requirements.
• C) The cost-based approach provides a supplier with incentives to pursue continuous performance improvement to realize shared cost savings and invest in productive assets.
• D) Profit is a direct function of cost.
• E) In the traditional market-based pricing approach, one party (i.e., usually the purchaser) seeks to capture all cost savings resulting from a supplier's improvement effort.

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Definitions:

IRR

The Internal Rate of Return is a financial measurement tool used to assess the profitability of prospective investments.

Accounting Basis

The method used to record financial transactions; common methods include cash basis and accrual basis accounting.

Scenario Analysis

A method of evaluating potential future scenarios by contemplating various possible results, often used for strategic planning purposes.

Simulation Analysis

A statistical method that involves running multiple scenarios of a model in order to estimate the probability of different outcomes.