A company is in the process of developing its mission statement.

Which one of the

following is least appropriate for a company's mission statement?

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A. Defining the purpose of the company.
B. Identifying what product or service the company is providing.
C. Promoting a common shared goal on the part of employees.
D. Explaining the tactics for increasing market share in a specific region.
Explanation

Choice "D" is correct. The inherent conflict between units and segments of a business
motivates the creation of a mission statement. A mission statement is a single,
conceptual statement meant to embrace the objectives of all segments, units, and
individuals within the organization. A mission statement is a clearly stated overview of
the organization's purpose. A company's mission defines its purpose for existing and
why it is in business. A mission statement is a one- or two-sentence statement
describing what a company is to do in business, potentially whom the business will
serve, and the products the business will offer. A vision statement for an entity is a
forward-looking view of the ideal state that the entity hopes to achieve. It should be
inspirational and describes where a company hopes to be in the future.

Tactics for increasing market share is more of an operational focus regarding how to
execute on strategy. The mission statement is a much higher level and does not
address tactics.

Choice "A" is incorrect. A mission statement is a clearly stated overview of the

organization's purpose. Defining the purpose of a company would be included in the
mission statement.

Choice "B" is incorrect. A mission statement should capture the entity's reasoning for
existence. Identifying products/services offered would be included in the mission
statement.

Choice "C" is incorrect. A mission statement creates a business climate or culture that
can be communicated to both employees and customers, and it should promote a
shared common goal on the part of employees.
Which of the following best describes the long‐term goals and objectives of an entity?

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A. Sales forecast
B. Master budget
C. Strategic plans
D. Capital expenditure plan
Explanation

Choice "C" is correct. The strategic planning process is part of the long‐term planning of
the firm that focuses on the long‐term goals and objectives of a firm. During this
process, the strengths and weaknesses of the firm are addressed and utilized to
develop a strategy to improve the firm.

Choice "A" is incorrect. The sales forecast does not describe the long‐term goals and
objectives of an entity, but what sales the company believes it can obtain in the short
term.

Choice "B" is incorrect. The master budget does not describe the long‐term goals and
objectives of an entity, but shows what revenue and costs must be obtained in the short
term to accomplish the strategic plans.

Choice "D" is incorrect. The capital expenditure plan does not describe the long‐term
goals and objectives of an entity, but shows what capital investments must be made in
the short term to accomplish the strategic plans.
The mission and vision of an organization most closely correlate with an entity's:

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A. Culture.
B. Capabilities.
C. Practices.
D. Strategy.
Explanation

Choice “D” is correct. The mission and vision of an organization most closely correlate
with an entity's strategy. An organization's mission represents the purpose of an entity,
and its vision represents the organization's aspirations and what it hopes to achieve
over time.

Choice “A” is incorrect. The mission and vision of an organization most closely correlate
with an entity's strategy, not culture. Culture is most closely correlated with core values.
An organization's mission represents the purpose of an entity, and its vision represents
the organization's aspirations and what it hopes to achieve over time.

Choice “B” is incorrect. The mission and vision of an organization most closely correlate
with an entity's strategy, not capabilities. An organization's mission represents the
purpose of an entity, and its vision represents the organization's aspirations and what it
hopes to achieve over time.

Choice “C” is incorrect. The mission and vision of an organization most closely correlate
with an entity's strategy, not practices. An organization's mission represents the
purpose of an entity, and its vision represents the organization's aspirations and what it
hopes to achieve over time.
Which statement related to planning is false?

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A. Objectives are set, then assumptions are made.
B. Policies help guide decision making.
C. Rules are specific guides and usually negative.
D. The organization must be structured to achieve the plan's objective.
Explanation

Choice "A" is correct. Objectives are precise and measurable steps to take toward a
future state that the company wants to achieve. Objectives are based on various
assumptions around internal and external environments.

Because objectives are based on assumptions, assumptions are made first. Hence, the
statement is false.

Choice "B" is incorrect. Policies are a set of principles adopted by organizations that
guide the decision-making process. Hence, the statement is true.

Choice "C" is incorrect. Rules are specific guides for action and generally prescribe
things that cannot be done. Hence, rules are generally negative. Hence, the statement
is true.

Choice "D" is incorrect. The organizational structure must be aligned to the strategic
plan in order to achieve the plan's desired objectives. Hence, the statement is true.
Which one of the following management considerations is usually addressed first in
strategic planning?

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A. Overall goals of the firm
B. Organizational structure
C. Recent annual budgets
D. Being an industry leader
Explanation

Choice "A" is correct. Defining the company's mission, vision, values, and
goals/objectives is the first step in the strategic planning process.

Setting the overall goals of the firm is the starting point in strategic planning.

Choice "B" is incorrect. Organizational structure is an important consideration in

strategic planning, but it is not addressed first. The organizational structure will be
partially determined by the goals of the firm.

Choice "C" is incorrect. Recent annual budgets may be reviewed as an aid in planning,
but they are not the first consideration in strategic planning. In fact, they often are
ignored.

Choice "D" is incorrect. Being an industry leader may be a goal of the firm, but it still is a
subset of the overall goals of the firm. This would be determined during the strategic
planning process.
Strategic planning, as practiced by most modern organizations, includes all of the
following except:

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A. Top-level management participation.
B. Strategies that will help in achieving long-range goals.
C. Analysis of the current month's actual variances from budget.
D. Identification of long-term key variables, including external influences.
Explanation

Choice "C" is correct. Strategy is the action plan for achieving the long-term goals of an
organization. Strategic plans are broad, general, long-term plans (usually five years or
longer). Strategic planning is long-term planning that looks at how the company is going
to achieve its goals and objectives. Strategic plans are futuristic.

Analysis of the current month's actual variances from budget is not a part of strategic
planning. It is too short-term and looks at the past.

Choice "A" is incorrect. Strategic planning requires top-level management participation

and support.

Choice "B" is incorrect. Strategic planning is concerned with formulation of the

strategies that help organizations achieve long-term goals.

Choice "D" is incorrect. Because strategic planning looks at the long term, it involves
identification of long-term key variables, including external influences.
Which of the following would effectively commit responsibility center managers to the
company strategy in a top‐down environment?

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A. The CEO sends a memo to each manager with specific instructions on forming their budgets.
B. The CEO sends a completed budget to each manager for review.
C. The CEO interviews managers and key employees to determine what they think the
responsibility center's priorities should be.
D. The CEO waits for budgets to be submitted and then reviews each for fit with strategy.
Explanation

Choice "A" is correct. In a top‐down environment, a budget proposal is the initial step in
a budgeting process, and before managers make a preliminary budget, the CEO sends
a directive or memo to each manager explaining what the corporate strategy is so they
can create their budgets with this in mind.

Choice "B" is incorrect. If the CEO sends a completed budget to each manager for
review, that action will not effectively commit responsibility center managers to the
company strategy, as managers will think they had no input on the budget and will,
therefore, not feel ownership of the company strategy.

Choice "C" is incorrect. If the CEO interviews managers and key employees to
determine what they think the responsibility center's priorities should be, that action will
create a bottom‐up environment instead of a top‐down environment.

Choice "D" is incorrect. If the CEO waits for budgets to be submitted and then reviews
each for fit with strategy, that action will create a bottom‐up environment instead of a
top‐down environment.
The corporate policies and practices that are needed for strategic plans to be effective
include all of the following except:

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A. Granting rewards and recognition to those who prepared the plan.
B. Continued, visible management support for the plan and management flexibility to alter the
plan should circumstances warrant.
C. Clear communication of the plan to all key personnel.
D. Delegating responsibility for implementing the plan and providing the necessary resources.
Explanation

Choice "A" is correct. Strategic plans are effective if they enable achievement of desired
objectives. An effective plan, if not implemented properly, will not yield desired results.

Rewards should only be associated with the achievement of the plan after successful
implementation, not in the preparation.

Choice "B" is incorrect. Continued, visible management support for the plan and
management flexibility to alter the plan should circumstances warrant are required for
strategic plans to be effective.

Choice "C" is incorrect. Clear communication of the plan to all key personnel ensures
that the plans are implemented as desired. Hence, clear communication is needed for
effective strategic plans.

Choice "D" is incorrect. Appropriate delegation of responsibility ensures that the plans
are implemented as desired. The resources required for implementation of the plans
must be provided for successful implementation.
Which of the following statements regarding competitive advantage is not correct?

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A. The two major forms of competitive advantage are differentiation and cost leadership.
B. If the total costs of a firm are less than those of close rivals, then the firm has a competitive
market advantage.
C. Cost leadership advantage may best be obtained by a firm when it builds market share or
matches the price of its rivals.
D. Differentiation advantage may best be obtained by a firm when it builds market share or
decreases its price.
Explanation

Choice "D" is correct. This is an inaccurate statement as a differentiation advantage

may be best obtained by a firm that builds market share or increases (not decreases) its
price.

Choices "A", "B", and "C" are incorrect, as they are all true statements. Competitive
advantage is generally defined as either differentiation or cost leadership. As to cost
leadership, a firm enjoys a competitive advantage when it is able to match the prices of
its rivals or has a cost structure that is lower than its rivals.
The management of a food processing company is analyzing its internal strengths and
weaknesses as part of its strategic planning process. Which one of the following
is most likely considered a strategic internal variable for the company?

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A. Changes in the legal code for food processors.
B. The economic forces that regulate the local labor supply.
C. Technological changes in food processing methods.
D. The culture at the company's food processing plant.
Explanation

Choice "D" is correct. Strategic planning often takes the form of a SWOT analysis,
which focuses on strengths, weaknesses, opportunities, and threats. Strengths and
weaknesses are internal to a company, while opportunities and threats are external.
Internal factors are within an entity's control. The internal factors that management is
likely to assess in its strategic plan include the following:

 Management: Creating a strong and stable leadership team

 Organization Structure: Developing appropriate roles and responsibilities and
accountability
 Human Resources: Creating a work environment in which strong employees
develop and grow
 Organizational Culture: Fostering an environment of collaboration and alignment
with the mission and vision of the entity
 Financial Status: Achieving strong financial results, which facilitates a greater
ability to build and execute the strategic plan
 Assets: Investing in physical infrastructure

The culture at a food processing plant can be a strength or a weakness, but in both
cases that culture is an internal variable because that culture is within the control of the
company itself and is not directly influenced by external factors.

Choice "A" is incorrect. This answer choice represents an external variable for a
company. The legal code changes for food processors are external factors, as legal
code changes are not influenced by the company.

Choice "B" is incorrect. This answer choice represents an external variable for a
company. Economic forces regulating labor supply are driven from the outside and are
not internal to a company.

Choice "C" is incorrect. This answer choice represents an external variable for a
company. Technological changes to food processing methods are externally driven.
Which of the following statements regarding competitive advantage is not true?

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A. The two major forms of competitive advantage are product differentiation and cost leadership.
B. If the manufacturing costs of a firm are less than those of close rivals, then the firm has a
competitive market advantage.
C. Cost leadership advantage may best be obtained by a firm when the firm builds market share
or matches the price of its rivals.
D. Differentiation advantage may best be obtained by a firm when the firm builds market share
or increases its price.
Explanation

Choice "B" is correct. This represents a false statement. Simply because the
manufacturing costs of a firm are less than those of close rivals does not necessarily
mean that the firm has a competitive market advantage. Only if TOTAL costs to a firm
are less than those of close rivals will a firm have a competitive market advantage.

Choices "A", "C", and "D" are incorrect, as they are all true statements.
BarkerCor's director of strategic initiatives is writing an executive summary for her boss
and it highlights factors that could influence the company's new strategic plan initiative.
If she wants the focus of this particular report to be on factors that the company does
not directly influence, which of the factors listed below will she most likely leave out of
the summary?

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A. Growth in economic activity at the local level over the last three years.
B. The decentralization of the company's human resources area, with directors assigned to each
primary department.
C. The trend of reduced market share for BarkerCor relative to its competitors due to an increase
in advertising by its peers.
D. Changes to the corporate tax rate due to recently passed tax laws, generating significant
increases to bottom-line profits for BarkerCor.
Explanation

Choice "B" is correct. The strategic planning process must incorporate the analysis of
internal and external factors that can drive the plan and influence success. The internal
factors are the elements that are within the control of the entity and create strengths and
weaknesses. The external factors are elements outside of the company's control and
result in opportunities and threats.

The company's human resources framework is an internal factor, which could either be
a strength or a weakness. Because the focus of her report is on factors outside of the
company's control, the human resources organizational structure and the decentralized
structure is least likely to be covered in the executive summary.

Choice "A" is incorrect. Growth in economic activity, whether at the national or local
level, is a macroeconomic factor that affects the entire economy and is appropriate to
include in a report highlighting external factors.

Choice "C" is incorrect. The competitive environment of the industry is an external factor
that should be included, as a company can do things to impact its position in an industry
but cannot directly influence its competitors' actions. A reduction in market share due to
competitors spending more on advertising is an external factor.

Choice "D" is incorrect. Changes in the tax rate are definitively outside of the company's
control and are appropriately considered an external factor.
The goals and objectives upon which an annual profit plan is most effectively based are:

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A. Quantitative measures, such as growth in unit sales, number of employees, and manufacturing
capacity.
B. Qualitative measures of organizational activity, such as product innovation leadership,
product quality levels, and product safety.
C. Financial and quantitative measures.
D. A combination of financial, quantitative, and qualitative measures.
Explanation

Choice "D" is correct. The annual profit plan expresses management's plans, goals, and
objectives in quantitative terms. The annual profit plan is a combination of operational
budget (quantitative aspects) and financial budgets. The goals and objectives that
management wants to achieve could be both quantitative as well as qualitative. All
goals and objectives cannot be quantified.

The annual profit plan should be based on quantitative, financial, and qualitative
objectives. This ensures that all goals and objectives are considered and there is a
balance between different goals and objectives. Ignoring qualitative measures would be
detrimental to the organization in the long term.

Choice "A" is incorrect. Focusing on quantitative measures alone would be detrimental

in the long run. An organization may earn higher profits in the short run by
compromising on quality aspects but may find difficulty in retaining customers in the
long run.

Choice "B" is incorrect. Qualitative measures are important. Financial and quantitative
measures cannot be ignored because they form the base of profitability and wealth
creation.

Choice "C" is incorrect. As explained above, an organization should not ignore the
qualitative aspects.
A company sells a product that is aimed at the broad mass market but is perceived as
unique throughout the company's industry. The company is earning above-average
returns on the product. Which one of the following is the most appropriate term for the
competitive strategy followed by the company?

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A. Market focus
B. Financial leadership
C. Cost focus
D. Differentiation
Explanation

Choice "D" is correct. Building a successful competitive strategy requires obtaining a

competitive advantage while maintaining customer loyalty and providing value to a
customer. Michael Porter's generic strategies include cost leadership, differentiation,
and focus. Organizations may choose to achieve their missions by creating the
perception that their product is better or has a unique quality that differentiates it from
competitors in the marketplace. A company's competitive strategy relates to how a
company offers its products/services within a marketplace. A competitive strategy works
well when the company is profitable and when customers need the product and find the
price desirable for that product.

Differentiation strategies work well when customers can see value in a product. It
involves creating a unique product where customers see the value of the product and
are willing to pay higher prices to obtain it.

Choice "A" is incorrect. Market focus is not a competitive strategy. Market focus
evaluates a company's current market, assesses where new needs may arise, and
develops products to hopefully meet those needs.

Choice "B" is incorrect. Financial leadership is not a defined competitive strategy.

Generally, financial leadership is guiding a nonprofit organization to sustainability.

Choice "C" is incorrect. Cost focus stems from the idea that a company's customer is
better off because the firm has been able to produce and sell its product for less than
that of its rivals. This strategy works well when customers do not care about the
uniqueness of a product and are very sensitive to the prices they pay.
A company serves a market in which average household income is below the national
average. The company primarily sells household consumables that customers can
purchase from a variety of stores in the area. To successfully compete in this market,
the company should engage in which of the following approaches?

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A. Differentiation with a broad focus
B. Differentiation with a narrow focus
C. Cost leadership with a broad focus
D. Cost leadership with a narrow focus
Explanation

Choice "C" is correct. Porter's generic strategies include cost leadership, differentiation,
and focus (niche). A strategy will be successful when it is appropriately tied to the needs
and wants of the target market and a company is able to execute on that strategy. An
analysis of who the customers are, what they are willing and able to afford, and the
types of products/services they need should serve as the foundation for any strategic
decisions.

The company's customer base has relatively low average household income, and the
products it needs are offered by other competitors at a variety of places. The products
themselves (household consumables) are not unique and, because income is low, the
customers cannot afford to pay for differentiated products. So the best choice for this
company is cost leadership with a broad focus.

Choice "A" is incorrect. A broad focus for this type of product makes sense, but
differentiation only works well when customers see the value of a premium product and
are willing to pay more for it. It is unlikely that customers in this market will be willing
and/or able to pay more.

Choice "B" is incorrect. This is not a niche product or a niche market, which means that
a narrow focus is unlikely to be successful. Also, this company's customers cannot pay
for higher-priced products.

Choice "D" is incorrect. Although lower prices will be beneficial to this customer base, a
narrow focus is unlikely to be successful because the product is fairly generic
(household consumables).
When do cost leadership strategies fail?

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A. Buyers have large amounts of bargaining power in the market.
B. Heavy price competition exists in the market.
C. Buyers become less price sensitive and start to have brand loyalty.
D. New entry firms are able to influence buyers to switch to their product by cutting the price of
their product for a period of time in an effort to gain market share and increase profits.
Explanation

Choice "C" is correct. If firms overlook the fact that few customers care about the fact
that a product is priced lower than others and care more about brand loyalty, cost
leadership strategies will fail.

Choices "A", "B", and "D" are incorrect, as these are all situations in which cost
leadership strategies work well.
Economic theory identifies two basic types of goods: inferior goods and superior goods.
As consumer income rises, a lower percentage of earnings are expended on inferior
goods while a higher percentage of earnings are spent on superior goods. Overall
strategies for achieving organizational missions would most likely match with types of
goods as follows:

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A. Cost leadership strategies for superior goods, differentiation strategies for inferior goods.
B. Cost leadership strategies for inferior goods, differentiation strategies for superior goods.
C. Cost leadership strategies would most likely be used for both inferior and superior goods.
D. Differentiation strategies would most likely be used for both inferior and superior goods.
Explanation

Choice "B" is correct. In a cost leadership strategy, organizations seek to capture the
market by offering products at lowest cost. In the case of a differentiation strategy,
organizations seek to capture the market by offering superior products with distinct
qualities that are not offered by the competition.

Organizations that sell economically inferior goods (necessities such as cotton swabs,
light bulbs, etc.) are more likely to posture themselves as cost leaders by offering such
products at the lowest price possible. Hence, a cost leadership strategy fits here.
Organizations that sell economically superior goods (luxuries such as cruise packages,
fine china, jewelry, etc.) will seek to differentiate the qualities and uniqueness of their
product as part of their strategy. This will need a differentiation strategy.

Choice "A" is incorrect. Economically inferior products would likely be associated with
cost leadership. However, economically superior products would likely be associated
with differentiation.

Choice "C" is incorrect. Economically inferior products would likely be associated with
cost leadership. However, economically superior products would likely be associated
with differentiation and not cost leadership.

Choice "D" is incorrect. Although economically superior products would likely be

associated with differentiation, economically inferior products would likely be associated
with cost leadership.
Which of the following are not considered in the group of internal factors of strengths
and weaknesses of a firm?

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A. Marketing effectiveness
B. Bargaining power of the suppliers
C. Competence of management
D. Clarity of the strategic mission
Explanation

Choice "B" is correct. Bargaining power of suppliers is considered in the group of

external factors or "opportunities and threats" facing the firm and/or industry, not in the
group of internal factors of strengths and weaknesses of the firm.

The following are internal factors of strengths and weaknesses of the firm:

 Innovation of product lines

 Competence of management
 Core competencies
 Influence of high-level managers
 Capital improvements
 Leadership in research and development
 Cohesiveness of the values of the organization
 Marketing effectiveness
 Effectiveness of communication
 Clarity of the strategic mission

The following are the external factors of opportunities and threats facing a firm/industry:

 Affecting overall industry and competitive environment

o The economy
o Regulations and laws
o Demographics of the population
o Technological advances and existing technology
o Social values
o Political values
 Affecting the competitive environment of the firm
o Barriers to market entry
o Market competitiveness
o Existence of substitute products
o Bargaining power of the customers
o Bargaining power of the suppliers
Which of the following is not an external factor that directly affects the competitive
environment of the firm?

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A. Barriers to market entry.
B. Bargaining power of suppliers.
C. Political issues.
D. Existence of substitute products.
Explanation

Choice "C" is correct. Political issues are external factors that affect the overall industry,
not simply the competitive environment of the firm.

Choices "A", "B", and "D" are incorrect, as all of these factors directly affect the
competitive environment of the firm.
Factors internal to the organization that impact strategy and are sources of strengths
and weaknesses include all of the following, except:

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A. Marketing effectiveness.
B. Competence of management.
C. Innovation of product lines.
D. Regulations and laws.
Explanation

Choice "D" is correct. Regulations and laws are external factors of opportunities and
threats that affect the overall industry.

Choices "A", "B", and "C" are incorrect, as internal factors (strengths and weaknesses)
of an organization include marketing effectiveness, management competence, and
product line innovation.
The concurrent action of basic competitive forces as defined by Porter's Five Forces
model determines the:

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A. Strategy that a firm should follow to achieve its objectives.
B. Rivalry inside the industry.
C. Entrance barriers that potential players must face to get into the industry.
D. Long-term profitability and the competitive intensity of the industry.
Explanation

Choice "D" is correct. Porter's Five Forces identify the factors within a market that have
a significant effect on the competitive environment and, therefore, the profitability of a
firm. The stronger the competitive environment, the more difficult it is for a firm to build
market share and maintain profitability. The five forces are barriers to entry, rivalries, the
threat of substitute products, bargaining power of suppliers, and bargaining power of
customers.

Identifying and understanding the competitive forces applicable within a market can
assist management in making better decisions and developing action plans. The
purpose of the Five Forces model is to help a company identify and assess its long-term
profitability based on an understanding of the competitive intensity of the industry in
which the company operates.

Choice "A" is incorrect. Porter's Five Forces do not determine the actual strategy. The
identification of the competitive environment that businesses operate in can help
management make better decisions and strategies within the market they operate in.

Choice "B" is incorrect. Porter's Five Forces will assess rivalry within an industry. The
five forces do not determine the amount of rivalry; it assesses the existence of rivalry.

Choice "C" is incorrect. Porter's Five Forces will assess the barriers to entry within an
industry. The five forces do not determine barriers to entry. They are addressed in the
model, but they are not determined by the model.
A firm is in heavy competition with a rival firm, and its rivals are consistently able to
effectively respond to changes in consumer preferences by making strategic moves in
an effort to win over the buyers and gain competitive advantage. Which of the five
forces that affect the competitive environment and profitability of a firm does this best
demonstrate?

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A. Barriers to entry.
B. Market competitiveness.
C. Existence of substitute products.
D. Bargaining power of customers.
Explanation

Choice "B" is correct. Market competitiveness is often the most significant of the five
forces facing a firm. Firms need to be able to anticipate the strategic moves of rival
firms. If a firm is in competition with other firms who are able to respond to changes in
various components affecting business, the firm faces a strong competitive force of
intensity of competition (market competitiveness).

Choice "A" is incorrect. Barriers to entry are "hoops" or other obstacles that a firm must
combat when it attempts to enter a new market.

Choice "C" is incorrect. A firm faces heavy competition from substitute products when
similar products exist in the marketplace, and consumers are easily able to switch from
one product to another.

Choice "D" is incorrect. Bargaining power of the customers relates to the ability of the
customer to directly impact the profitability of the firm by increasing the negotiating
power of the customer.
Which of the following statements regarding the existence of substitute products is
correct?

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A. The impact of substitutes will have more of an effect on the competitive environment of a
firm if the substitutes are difficult for customers to obtain.
B. When the cost of buyers switching to new products is high, the effect of substitutes on the
competitive environment of a firm is high.
C. If few substitutes exist, buyers have little choice of products and may be willing to pay a
higher price for the products that are available.
D. If few substitutes exist, buyers may have a limit on the maximum price that they are willing to
pay and may choose to not purchase the firm's product if the price is too high.
Explanation

Choice "C" is correct. If few substitutes exist, buyers have little choice of products and
may be willing to pay a higher price for the products that are available.

Choice "A" is incorrect. The impact of substitutes will have more of an effect on the
competitive environment of a firm if the substitutes are readily available to consumers
(not difficult to obtain).

Choice "B" is incorrect. When the cost of buyers switching to new products is low (not
high), the effect of substitutes on the competitive environment of a firm is high.

Choice "D" is incorrect. If many (not few) substitutes exist, buyers may have a limit on
the maximum price that they are willing to pay and may choose to not purchase the
firm's product if the price is too high.
When suppliers have a significant amount of bargaining power, what is the impact on
the costs and profits of a firm?

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Costs Profits

A. Increase Decrease

B. Increase Increase

C. Decrease Increase

D. Decrease Decrease
Explanation

Choice "A" is correct. When the bargaining power of suppliers of inputs to the
production process is high, suppliers can take profits away from a firm simply by
increasing the cost of the inputs to the firm’s production process.

Choices "B", "C", "D" are incorrect based on the above explanation.
Which of the following is not considered a factor that increases the bargaining power of
the customer?

A. Much information is available to the customer to compare and contrast features of all products
on the market.

B. One group of customers makes up a large volume of the firm's business.

C. Strategic alliances have been formed with suppliers and other firms.

D. Several alternate suppliers (sellers) of the product exist.

Explanation

Choice "C" is correct. When strategic alliances exist between a supplier and other firms,
the bargaining power of the suppliers increases.

Choices "A", "B", and "D" are incorrect because they all are factors that increase the
bargaining power of the customer, which are:

 Customers make up a large volume of a firm's business.

 There is much information available to customers.
 The buyers have low switching costs.
 There are a high number of alternate suppliers (sellers) of the product.
After product ABC has led the market for the past decade, the growth of product ABC is
slowing. However, in this stage of its life cycle, the product is still generating significant
amounts of cash flows that cover the companyʹs investment into new product
innovations. According to the BCG Growth-Share Matrix, product ABC is most likely an
example of a:

A. Star.
B. Cash cow.
C. Question mark.
D. Dog.

Explanation

Choice "B" is correct. The BCG (Boston Consulting Group) Growth-Share Matrix is a
method of analyzing a portfolio of products or businesses based on growth and market
share to help companies determine whether to sell, keep, or invest more in a particular
product or service. The categories are plotted on a four-square matrix, with the x-axis
(horizontal axis) representing market share and the y-axis (the vertical axis)
representing market growth. The four categories are question marks (high growth, low
market share); stars (high growth, high market share); dogs (low growth, low market
share); and cash cows (low market growth, high market share).

Although product ABCʹs growth has slowed, the product continues to generate a
significant amount of cash (likely due to high market share). The appropriate
categorization of a product with low growth and high market share is "cash cow."

Choice "A" is incorrect. A star represents products or services in which more money
should be invested because of high growth. ABC would not be considered a star
because of the decline in growth.

Choice "C" is incorrect. Question marks are products and services that are in high-
growth-rate markets, but market share is relatively low. Products and services in this
category require a substantial amount of company resources. ABC is the opposite of a
question mark because of the decline in growth.

Choice "D" is incorrect. A dog represents products and services that have low growth
rates and low market shares. Typically, these products or services need to be
repositioned, liquidated, or outright sold. ABC is still generating significant cash flows,
which are helping fund other product development and should therefore not be
eliminated from the product line.
The CFO of the TYI Company is reviewing several of the company's product lines as
part of the annual budgeting process. She has a limited amount of funds to invest for
the coming year and wants to identify the product from the list below that should receive
the lowest allocation of budget funds.

 Product A: Market is growing quickly with many competitors; market share

currently is 5 percent.
 Product B: Market share of close to 20 percent; market growth has been strong
over the last five years.
 Product C: Market share is under 5 percent and the market overall has slowed
considerably, with no forecasted uptrend.
 Product D: Market is steady, with growth ranging between 2 percent and 3
percent a year; market share for the product remains about 15 percent.

Using the BCG Growth-Share Matrix, which of the products described above will be
classified as a "dog" and merit minimal to no budget dollars?

A. Product A
B. Product B
C. Product C
D. Product D

Explanation

Choice "C" is correct. The BCG Growth-Share Matrix is a method of analyzing a

portfolio of products or businesses to help companies determine whether to sell, keep,
or invest more in a particular product or service. The matrix contains four categories:
dogs, cash cows, stars, and question marks. Products are divided between the
categories based on their market shares and the growth of their markets.

Product C is a "dog," and with its low market share and low market growth, the CFO's
best option is likely to drop or sell this product line. Minimal to no budget dollars should
be allocated to "dogs."

Choice "A" is incorrect. Product A is a "question mark" due to its existence in a high
growth market but with a relatively low market share. This is not the ideal choice for
further investment with resources being limited.

Choice "B" is incorrect. With its high market share and high growth market, Product B is
a "star." Stars are exactly where money should be invested to take advantage of a
product's already strong position in a growing market.

Choice "D" is incorrect. This product is a "cash cow," which means it will produce a lot of
cash for the company without requiring significant resources. Cash generated from this
product can be used to invest in "stars" and potentially "question marks."