A Strategy of Diversifying into Unrelated Businesses

question 3

Multiple Choice

A strategy of diversifying into unrelated businesses

• A)is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit).
• B)is the best way for a company to pass the attractiveness test in choosing which types of businesses/industries to enter.
• C)discounts the importance of strategic fit and instead focuses on building and managing a group of businesses in attractive industries that can be acquired on financial terms that allow for acceptable returns on investment.
• D)concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders.
• E)generally offers more competitive advantage potential than related diversification.

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Definitions:

Manufacturing Overhead

All indirect costs associated with manufacturing, excluding direct materials and direct labor, such as maintenance and utilities.

Raw Materials Inventory

The total cost of all the raw materials that are currently stored by a company and ready to be used in production.

Underapplied

Underapplied refers to a situation where the actual manufacturing overheads are more than the overheads applied to products or services based on the predetermined overhead rate.

Overapplied

A condition where the allocated or applied manufacturing overhead costs exceed the actual overhead costs incurred.