A Disadvantage of Pursuing a Cost Leadership Strategy Is That

question 1

Multiple Choice

A disadvantage of pursuing a cost leadership strategy is that

• A) technological change can make experience curve economies obsolete.
• B) price wars make it hard to compete with differentiators.
• C) it costs more than a differentiation strategy because of the necessity of high capital investments.
• D) powerful buyers are a major threat.
• E) no quality control exists.

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Definitions:

Variable Expense Ratio

A ratio computed by dividing variable expenses by sales.

Operating Leverage

A financial concept that measures the proportion of fixed costs in a company's cost structure, indicating its sensitivity to changes in sales volume.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to covering fixed costs and generating profit.

Net Operating Income

A measure of the profitability of a business's core operational activities, excluding any income or expenses not directly related to its main operations.