What Legitimate Reason Might Management Have for Insisting That One

question 62

Multiple Choice

What legitimate reason might management have for insisting that one of its divisions buy a part from another division within the same company even though the buying division could source the part at a lower price externally?

• A)It wants to make use of excess capacity in the seller's division.
• B)It is concerned about the external supplier's ability to deliver the part on a timely basis.
• C)It wants to make use of excess capacity in the buyer's division.
• D)There is never a legitimate reason that justifies ordering a division to buy internally when it could source the product cheaper externally.

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Definitions:

Fixed Assets

Long-term assets purchased for operating the business, not expected to be converted to cash within a year.

Investing Activities

Deals that include buying and selling assets with long-term value and investments outside of cash equivalents.

Operating Activities

Business actions related directly to the production and delivery of goods and services, reflected in the cash flow statement.

Investing Activities

Transactions and events that involve the purchase or sale of long-term assets and investments, a component of a company’s cash flow statement.