A Low-Cost Leader Can Translate Its Low-Cost Advantage Over Rivals

question 54

Multiple Choice

A low-cost leader can translate its low-cost advantage over rivals into superior profit performance by

• A) cutting its price to levels significantly below the prices of rivals.
• B) using its low-cost edge to underprice competitors and attract price-sensitive buyers in large enough numbers to increase total profits or refraining from price cutting and using the low-cost advantage to earn a higher profit margin on each unit sold.
• C) going all out to use its cost advantage to capture a dominant share of the market.
• D) spending heavily on advertising to promote the fact that it charges the lowest prices in the industry.
• E) outproducing rivals and thus having more units available to sell.

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Definitions:

Excess Amortizations

Excess Amortizations refer to the amount by which amortization expenses exceed what is deemed necessary or standard for a given period, often adjusting the value of intangible assets.

Intra-Entity Transactions

Transactions occurring between divisions or departments within the same company.

Intra-Entity Gross Profit

The profit realized from transactions within segments of the same company, not reflected in consolidated financial statements until realized externally.

Deferred

Accounting term used to describe revenues or expenses that have been incurred but not yet recorded in accordance with accrual accounting principles.