MGMT 4860 Chapter 4 Cost Advantage
32.The board of directors of Colors Corp., a new startup, chalked out a list of resources that would be needed to optimize the efficiency of the company. It needed a human resources department to take care of recruitment, a few suppliers to provide raw materials, a few data recording equipment such as computers to store and manage data, and a large geographical area to start the company. The board stated that these provisions would help the company obtain desired profits. The resources and provisionsmentioned in this scenario are examples of _____.
inputs
26.Indigo Inc. experienced a drop in the price of each product as the overall volume of production increased. This relationship or method caused an increase in profits accrued by the company. This is an example of the _____.
law of experience
23.A group of students studying a firm named Sanders & Collins Corp. found that the workers initially learned their task-related activities very fast. In turn, this helped the firm reduce the labor cost incurred in producing each product. However, their rate of learning these tasks reduced over time. This scenario best illustrates the _____.
learning curve
51. In the context of the experience curve, what did early work by the Boston Consulting Group show?
A company's relative market share was a key indicator of competitive advantage and profit performance.
25.Vladimir, the CEO of Autumn Inc., claims that a learning curve is a better option of identifying the growth of the company. His assistant, Mark, states that growth can be better assessed if a scale curve is used as it reflects reliable and validated results and moreover it shows results of a specific time period. Which of the following statements strengthens Vladimir's claim?
A learning curve assesses the overall company from its inception.
6. Fuchsia Corp., a retail chain, opens four outlets in different locations of a city. It markets itself for attracting customers to these locations. The company invests in promotional campaigns for one of the outlets and then divides the expenses among the four outlets. Which of the following is the subject of economies of scale in the described scenario?
Advertising expenses
43.What is meant by diseconomies of scale?
An increase in marginal cost when output is increased
41. Economies of scale _____.
Arise from the ability to spread fixed costs of production
44. In large organizations, diseconomies of scale can happen because large plants _____.
Become very complex to manage
38.BizTechno Inc. has always retained competitive advantage over its competitors. The company has offered customer satisfaction for many years by providing the best services and benefits for them. The resources, capabilities, and the organizational structure of the organization have also created an increased edge over its competitors. Which of the following does this scenario best illustrate?
Business model
54. Identify a primary way in which companies achieve cost advantage through lower-cost inputs.
By cooperating especially well with suppliers
55. Identify a way in which companies can create a new business model to achieve cost advantage.
By eliminating activities in the value chain
35.String Line Inc. has established a loyal supplier base. The management at String Line had created a system in which it chooses a supplier that is reasonably affordable, and instead of quoting the company's price and demanding that it be met, it complies with the supplier's quotes. Over time, this has established a bond of loyalty with the supplier. When String Line opened a new branch, the supplier built its plant close to the branch so as to save transportation costs. Which of the following has String Line Inc. established with the supplier?
Cooperation
49. Which of the following statements best defines the law of experience?
Costs per unit decrease with increases in cumulative volume of production
16.The increased efficiency that results when employees perform a narrow range of tasks over and over again leading them to acquire specialized knowledge that helps them complete the task more efficiently accurately defines the term _____.
Employee specialization
22.Li, the president of Lavender Inc., believes that when employees are trained, they should work on one particular task till they know how to perform it perfectly. Thus, the employees are usually encouraged to repeatedly perform their designated tasks. Li claims that the more an employee engages in a particular task, the more skilled he or she will become at it. Which of the following statements strengthens Li's belief?
Employees will find better ways at completing the same task.
52. A scale curve slope in a particular industry that is quite steep indicates that:
First movers in a fast-growing market will secure a widening cost advantage.
10.The Finance Department of Neptune Industries has to audit expenses and profits made each year. It creates separate databases for costs accrued in the form of equipment used in the company and for other costs such as costs of accounting, rent, and managerial salaries. Which of the following is the subject of economies of scale in the described scenario?
General and administrative costs
53. Proprietary knowledge refers to _____.
Information that is not public and that is viewed as the property of the holder
13.Which of the following is a feature of task specialization?
It enables workers to be more efficient and thus enables them to avoid loss of time.
48. Identify a true statement about the experience curve.
It is a representation of the relationship between cumulative volume and product cost.
47.Which of the following statement is true of the learning curve?
It is the concept that labor costs per unit decrease with increases in volume due to learning.
56. What is true about a minimum efficient scale?
It shows the optimal quantity for a company to produce
18.What is true about a minimum efficient scale?
It shows the optimal quantity for a company to produce.
11.Which of the following is a primary characteristic of employing automated equipment in a company with high levels of production?
Large companies can reduce per-unit cost of production.
7. MediDose Inc., a pharmaceutical company, has been studying and experimenting with afew drugs. After 10 years of conducting and standardizing tests, the company comes up with positive results that would help many patients. These drugs become popular and effective among millions of patients and enable the company to expand its operations across the globe while spreading out the cost of the studies. Which of the following is the subject of economies of scale in the described scenario?
Research and development expenses
45. Which of the following statements is true of cost advantage?
Size and scale do not always guarantee a cost advantage.
42. Which of the following is a principle source from which economies of scale arise?
The ability to spread nonproduction costs
50. To a strategist, what does the logic of the experience curve suggest?
The company with the highest volume in an industry will also be the lowest-cost producer.
24.In a recent presentation by the management of Seas Inc., the presenters conducted a discussion with a pictorial chart on the cumulative units of production of the company and its correlation with the cost per unit of the product. Which of the following charts did the presenters of Seas discuss?
The experience curve
27.Mercury Corp., a startup company, is sure that it will achieve a steep curve of 75 percent as it is selling a unique product that has not been introduced into the market before. The company is confident that this product will be sold at a fast rate due to two reasons: the product is a necessity in every home and it is a break-through solution. Mercury sees this product as helping the company grow at a fast pace. Which of the following strategies has Mercury Corp. adopted?
The growth/investment strategy
5. Which of the following statements is true of research and development (R&D)?
The higher a firm's R&D costs, the more the scope for the company to expand globally allowing costs to be spread across more customers.
46. Identify a true statement about economies of scope.
They exist when costs are reduced by expanding the scope of a company's operations to related activities.
9. Which of the following statements is true of a company's general and administrative costs (G&A)?
They help a company with high sales volume that creates cost advantage by managing its G&A across more units.
36.Techno Inc. is a computer hardware company that gets its computer parts from countries that manufacture them for lesser price than what its competitors pay and at a better quality. This allows Techno to save on the prices paid for the raw materials and use them to increase its production volume. Which of the following is Techno Inc. practicing in order to attain cost advantage?
Wage rates
30.Rinkon Inc., an automobile company, purchased its competitor TrackRoads Inc. that had similar production quantities and a sufficient amount of raw materials. This takeover was done to decrease the unit cost production of Rinkon and to increase its production using more equipment in Rinkon. This strategy led to record profits and more customers investing their finances on cars manufactured by Rinkon. The scenario best illustrates the:
acquisition strategy.
21.Orange Superstore is largely customer centric and economical in its methods. The store sells the best quality products at prices that are lower than other stores. The store depends on the fact that its salespeople get better at completing their tasks over time. This method used by Orange Superstore is an example of _____.
cost advantage strategy
29.Trends Inc. has been awarded the best branded clothing company award for three years consecutively. The CEO of the company stated that this was possible due to the company strategically lowering the cost of each unit produced, and successfully maintaining that method in order to effectively contain finances. While comparing Trends with other similar production companies, it was found out that the company did certainly collect more profit than the others. The scenario best illustrates the:
cost-management strategy.
19.DFN Inc. expanded its manufacturing plant to employ more equipment because the management of the company thought this would help them attain more sales. Unfortunately, this affected the cost of each unit produced because the company invested more finances for better equipment. This also led to a decrease in sales as customers were not willing to buy the product for an increased price. This scenario best illustrates _____.
diseconomies of scale
1. A reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases best defines the term _____.
economies of scale
2. Taurus Inc. usually produces 5,000 handcrafted products in a day. Recently, the demand for handcrafted products drastically increased as one of its products became a popular item for home décor. Due to this increase, the company had to up its production level to 10,000 products per day. This, however, decreased the price of individual products. This scenario best illustrates _____.
economies of scale
20.Blaze Corp., a car company, shared its costs of producing cars. It did so by introducing the production of car accessories that are used by customers to upgrade or customize their cars. Blaze Corp. started selling car accessories such as engine oils, wheels, and music player and thus shared its market research costs between cars and car accessories. This led to a definite decrease in the overall cost of production. This scenario best illustrates _____.
economies of scope
14.Connections Communications Inc. has been able to achieve optimal efficiency by identifying a task for each employee and enabling them to become thoroughly proficient in their tasks. The company has realized that employees develop an expertise in their specified job profile over time and they gradually begin to work faster than when they started the job. This is an example of _____.
employee specialization
37.Suppose a garment manufacturer named Vogue Inc. buys materials from another country that is well known for its cotton and silk exports. Recently, the currency of this country fell, which enabled Vogue Inc. to purchase more raw materials. Vogue Inc. achieved cost advantage through _____.
exchange rates
3. The relatively fixed costs such as the costs of plant and equipment, which do not increase with an increase in the number of units manufactured, are known as _____.
fixed cost of production
4. Nirvana Publishing House invested on high-end printing equipment. After a year of production, the company had to double the amount of production of its newspapers and weekly magazine because of high customer demand. However, the company did not have to invest in another similar equipment to meet demands. This is an example of a _____.
fixed cost of production
8. The expenses and taxes that are directly related to the wide-ranging operation of a company best define the term _____.
general and administrative costs
34.Five Checkers Inc. has been able to purchase more supplies for less money than its competitors. Five Checkers makes use of a set of communication skills that create compromising deals with its suppliers. Sound reasons are stated by Five Checkers to show why the suppliers must reduce their prices. The reasons are accepted by the suppliers and thus have helped increase profits for Five Checkers Inc. In this scenario, Five Checkers Inc. used _____.
negotiating tactics
28.Lavender Inc., a computer manufacturing company, sells its products at costs that are lesser than its competitors as it wishes to gain profits in order to cover more of the competitive market. The company follows this method as it has high unit volumes. The scenario best illustrates the _____.
pricing strategy
31.Ming Gardens Corp., an interior design company, is solely owned by Veronica. The company has been able to achieve competitive advantage due to the knowledge acquired by Veronica over the years. This knowledge was attained under the protective custody of Veronica and she does not want to publish them to anyone. This scenario reflects the development of _____.
proprietary knowledge
33.Yellow Corp., a supplier that provides raw materials to a leading computer brand, had to lower its costs by 7 percent as the computer brand doubled its order. As a result, Yellow Corp. experienced economies of scale. This negotiation tactic is an example of _____.
purchasing volume
17.Attire Corp., a garment manufacturing company, explains to its employees why its previous year's sales had not met the required standards. The management uses a diagram of the cost acquired for each item manufactured against the volume of items produced in a particular period of time. The pictorial representation is an example of the_____.
scale curve
12.Breaking a large process into smaller elements that require specialized knowledge is known as _____.
task specialization
15.Turbine Industries breaks down its manufacturing process into smaller segments that are performed by employees who are trained very well. This also helps the firm to save time because this way the employees do not need to juggle between various tasks. This scenario best illustrates _____.
task specialization
39.TrueBiz Corp. follows a system wherein all the activities of the company are directed toward converting parts of a product into an entire finished good. These activities are one in tandem so that a perfected product can be created which can be sold to a prospective customer. This is an example of a _____.
value chain
40.VisionZed Inc., a computer software company, spends a lot of finances on research. It tries to implement the latest technologies available and provides services that are matchless when compared to any of its competitors. At the same time, Xtron Technologies Corp., another computer software company, pays half the price that VisionZed pays on research as it combines the intelligence of different software companies and creates its product. This enables Xtron to have a cost advantage over VisionZed. Xtron Technologies Corp. is an example of a company that eliminates steps in the _____.
value chain
