Spend analysis is one of the basic tools in use to help companies rationalize their procurement patterns and supplier selections. Which of the following statements about spend analysis is incorrect?

a.

It can lead to better pricing and reduced costs.

b.

It can help companies to cut down on spending outside preferred supplier contracts.

c.

It usually enlarges a companys supply base.

d.

It helps consolidating suppliers of the same or similar capabilities to drive greater procurement volumes through fewer supply entities.

e.

It provides better visibility into overall spending patterns.

A buying firm has decided to launch a new product. The final selling price of the new product has been determined by a cross-functional team involving R&D, marketing, engineering, supply chain management, and purchasing. This figure has then been disaggregated to the component level by having discussions with suppliers, especially some key suppliers. For one critical component, the buyer and the supplier have agreed to a target purchase/selling price. The buying firm has targeted this price as one that will support meeting the overall target price of the new product. Below information is put together by the buyer and the supplier. What should the suppliers quoted price be based on the agreed-upon information?

Cost Driver	Description
Material	$20 per unit
Labor	$8.5 per unit
Manufacturing overhead	200% of direct labor cost
Selling, general, and administrative expense rate	10% of manufacturing cost (material and labor)
Projected product life	2 years
Two-year demand	300,000 units
Profit margin agreed to	30%
Upfront investment (technology, equipment, etc.)	$3 million

a.

Greater than $55 but less than or equal to $60

b.

Greater than $65 but less than or equal to $70

c.

Cannot decide

d.

Greater than $60 but less than or equal to $65

e.

Greater than $70 but less than or equal to $75