CPP Cost Management & Economics Flashcards

Which cost component typically represents the largest portion of total packaging cost for a high-volume consumer goods company?

Answer: Raw material / substrate cost

Raw material and substrate costs generally dominate total packaging cost, making material selection and source reduction the highest-leverage levers for cost reduction.

What is 'total cost of ownership' (TCO) in packaging procurement?

Answer: All costs across the full lifecycle including purchase price, logistics, quality, and end-of-life

TCO captures every cost associated with a packaging component across its entire lifecycle, enabling more accurate supplier and material comparisons beyond unit price.

A packaging engineer performs a 'make vs. buy' analysis to determine whether to:

Answer: Produce packaging in-house versus sourcing it from an external supplier

A make vs. buy analysis compares the total costs and strategic trade-offs of in-house packaging production against external procurement to guide sourcing decisions.

How does increasing order quantity typically affect per-unit packaging cost from a supplier?

Answer: It decreases per-unit cost due to economies of scale

Larger order quantities spread fixed setup and overhead costs over more units, allowing suppliers to offer lower per-unit pricing through economies of scale.

In packaging cost analysis, 'conversion cost' refers to:

Answer: The cost to transform raw materials into finished packaging components (labor, energy, overhead)

Conversion cost encompasses the manufacturing expenses — labor, energy, and overhead — required to process raw substrates into finished packaging.

Which financial metric measures the profitability of a packaging investment by comparing net gain to the initial cost?

Answer: Return on Investment (ROI)

ROI expresses the financial return of a packaging investment as a percentage of its cost, helping justify capital expenditures and packaging changes.