A Manufacturer Is Moving Downstream in Terms of Product Flow

question 30

Multiple Choice

A manufacturer is moving downstream in terms of product flow by launching a chain of retail outlets.Which diversification strategy is being used by the company?

• A)forward vertical integration
• B)related diversification
• C)backward integration
• D)conglomerate diversification

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Definitions:

Fixed Costs

Costs that do not vary with the level of output or sales over the short term, such as rent or salaries.

Variable Costs

Costs that vary in direct proportion to changes in production or sales volume, such as materials and labor.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, determined by the proportion of fixed costs to variable costs.

Variable Costs

Costs that change directly in proportion to changes in the volume of production or activity level, such as raw materials, labor costs directly tied to production, and utility costs for manufacturing facilities.