One of three building block costs a company incurs. Purchases costs include all expenditures a company makes for such things as raw materials, energy and other supplies.
(See also Building Block Costs, Capital Costs, People Costs)
Tyson Foods' margins may decline because of the expected rise in feed costs in the coming year. (
Year 1997-SIC 2015)
Explanation: The cost of animal feed is a major Purchases cost for Tyson Foods.
By concentrating on the conventional Class VIII truck market and by lowering costs through the purchase of less expensive product components (and passing the cost savings to the customer), Freightliner has grown faster than anyone in the industry. (
Year 1989-SIC 3713)
Explanation: Freightliner has reduced its Purchases Cost by substituting less expensive components for more expensive components.
Under pressure in the domestic markets, U.S. automakers decided to purchase low-end automobiles from foreign suppliers, at lower production costs, rather than build them themselves. (
Year 1987 – SIC 3711)
Explanation: The domestic automobile suppliers substituted Purchases costs for their own People, Purchases and Capital costs of producing the automobiles themselves.
Lowes is building five new 1 million square foot distribution centers. These permit the Company to buy larger quantities of products from vendors, resulting in better volume discounts. (
Year 1998 – SIC 5211)
Explanation: Lowes is buying products in larger quantities to reduce its Purchases costs.
Hotels.com contracts with individual hotels a year in advance for guaranteed blocks of rooms at set prices. (
Year 2002 – SIC 4724)
Explanation: These large guaranteed purchases reduce the company’s Purchases costs for its product.
Retailers claim that record clubs can give several CDs for a penny offers because record companies give the clubs millions of CDs free in the name of promotional copies. (
Year 1996 – SIC 5735)
Explanation: The free CDs from the record companies reduce the Purchases costs of the record clubs.
Bose has asked seven vendors to eliminate sales people and, instead, place representatives in Bose’s purchasing department, at vendors’ expense, to create orders. (
Year 1991 – SIC 3651)
Explanation: Bose undertook this arrangement with its suppliers in order to reduce its Purchases costs by eliminating some of the vendors’ costs.