The Best Reason for Investing Company Resources in Vertical Integration

question 84

Multiple Choice

The best reason for investing company resources in vertical integration (either forward or backward) is to

• A)expand into foreign markets and/or control more of the industry value chain.
• B)broaden the firm's product line and/or avoid the need for outsourcing.
• C)gain a first-mover advantage over rivals in revamping the industry value chain.
• D)add materially to a company's technological capabilities, strengthen the company's competitive position, and/or boost its profitability.
• E)achieve product differentiation and/or lengthen the company's value chain to include more activities performed in-house and thereby gain a greater ability to reduce internal operating costs.

---

Definitions:

Allocated General Overhead

involves distributing indirect costs across different departments or products to reflect their share of resources used.

Financial Advantage

The benefit gained in financial terms, which may come from different sources such as cost savings, increased revenue, or investment returns.

Fixed Manufacturing Expenses

Fixed manufacturing expenses are overhead costs that do not change with the level of production output, such as rent for a factory building.

Fixed Selling

Costs associated with selling products that remain constant regardless of the level of production or sales, such as salaries of sales personnel and rent of the sales office.