What Would Be a Legitimate Reason for Upper Management to Insist

question 58

Multiple Choice

What would be a legitimate reason for upper management to insist on an internal transfer even though the product could be sourced outside the company at a price that is lower than the company's variable cost?

• A)Management is concerned that its manufacturing equipment will soon be obsolete, and it wants to get full use out of it before it happens.
• B)Management wants to ensure a secure supply of the product.
• C)The company has excess capacity.
• D)There is never a legitimate reason that justifies an internal transfer if a product can be sourced outside the company at a price that is lower than the company's variable cost.

---

Definitions:

Direct Labor

The cost associated with the work of employees who are directly involved in the production of goods or services.

Financial Advantage

The position of having superior financial resources or capabilities compared to others, providing a competitive edge.

Fixed Costs

Costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.

Annual Financial Advantage

Describes the financial benefit or gain achieved by an entity over the course of a fiscal year, encompassing all revenue streams and savings.