Question 1

If Slick Shades, a sunglasses manufacturer, contracts with an outside supplier to manufacture the lenses for the sunglasses, this is an example of _ ______.
A)outsourcing
B)divestiture
C)forward integration
D)backward integration

Accepted Answer

Outsourcing involves contracting with an outside supplier to produce goods or services, rather than producing them in-house. In this case, Slick Shades is outsourcing the production of lenses to an outside supplier.

Question 2

If Happy Avocados, a ready- made guacamole manufacturer, purchases an avocado farm, this is an example of______ .
A)divestiture
B)forward integration
C)backward integration
D)outsourcing

Accepted Answer

Backward integration involves a company purchasing or acquiring a supplier or a raw material source. In this case, Happy Avocados is purchasing an avocado farm which is the source of one of their main ingredients, thus it is an example of backward integration.

Question 3

Fast Prints has a contract with local couriers to deliver their products to customers located throughout the city and it cost Fast Prints $5,000 in legal fees to establish the contracts. Fast Prints charges $25 for each set of 500 copies delivered in the city. What are Fast Prints' transaction costs?
A)$5,000
B)$25
C)$5,025
D)$4,975

Accepted Answer

Transaction costs include the costs of negotiating and enforcing contracts. The $5,000 legal fees to establish the contracts with local couriers are the transaction costs. The $25 charge for each set of 500 copies is the price of the service, not a transaction cost.

Question 4

If Big Dogs, a hot dog producer, purchases delivery trucks to deliver their hot dogs to local grocery stores, this is an example of ______.
A)forward integration
B)backward integration
C)outsourcing
D)divestiture

Accepted Answer

Forward integration involves a company expanding their business activities by acquiring or creating new distribution channels, such as purchasing delivery trucks to deliver their products to retailers.

Question 5

If Good Smells, a perfume manufacturer, purchases several local retail shops to sell their perfumes, this is an example of______ .
A)forward integration
B)outsourcing
C)divestiture
D)backward integration

Accepted Answer

Forward integration is a strategy that involves a company expanding its business by acquiring distribution channels. In this scenario, Good Smells, a perfume manufacturer, is purchasing local retail shops to sell their perfumes, which is an example of forward integration. This allows the perfume manufacturer to directly reach its customers and control the retail selling process.

Question 6

Big Oranges produces orange juice. To make its juice, Big Oranges harvests oranges from its own farms in addition to purchasing oranges from other locally owned farms. Big Oranges is _______.
A)partially vertically integrated
B)partially forward integrated
C)completely vertically integrated
D)completely forward integrated

Accepted Answer

Big Oranges is partially vertically integrated because it owns its own farms for harvesting oranges, but also purchases oranges from other locally owned farms.

Question 7

If Happy Cows, a dairy manufacturer, sells its sour cream division, this is an example of______ .
A)divestiture
B)outsourcing
C)backward integration
D)forward integration

Accepted Answer

Divestiture refers to the act of a company selling off a division or segment of its business. In this case, Happy Cows is selling off its sour cream division, indicating a divestiture. Outsourcing refers to the practice of contracting with an external company for goods or services. Backward integration involves a company acquiring a supplier or manufacturer, while forward integration involves a company acquiring a distributor or retailer.

Question 8

If View Your World, a high- end window manufacturer, has contracted with a supplier to produce their glass, this is an example of _ ______.
A)forward integration
B)a market transaction
C)outsourcing
D)backward integration

Accepted Answer

Outsourcing refers to contracting with an external organization to perform a specific task or function that would otherwise be done internally. In this case, View Your World is contracting with a supplier to produce their glass, indicating that they are outsourcing this aspect of their production process.

Question 9

If a firm requires a standardized raw material to produce its output,______ is often the least expensive option to purchase the raw materials.
A)divestiture
B)the spot market
C)backward integration
D)forward integration

Accepted Answer

The spot market is often the least expensive option to purchase standardized raw materials as it allows firms to purchase the necessary inputs at the current market price without needing to commit to long-term contracts or backward/forward integration. This can be beneficial in situations where there is excess supply in the market or when the demand for the raw material is low.

Question 10

The bottom of the supply chain contains______ and is referred to as the____________ end of the chain.
A)finished goods; downstream
B)finished goods; upstream
C)raw materials; upstream
D)raw materials; downstream

Accepted Answer

The answer of The bottom of the supply chain contains______...

Question 11

If View Your World, a high- end window manufacturer, has contracted with local carpenters to install their windows in residential homes, this is an example of______ .
A)outsourcing
B)a market transaction
C)forward integration
D)backward integration

Accepted Answer

The answer of If View Your World, a high- end...

Question 12

If Big Scoops, a local ice cream parlor, purchases milk from a grocery store to make their ice cream, this is an example of______ .
A)outsourcing
B)using a spot market
C)backward integration
D)forward integration

Accepted Answer

Purchasing milk from a grocery store for immediate use rather than establishing a long-term contract or producing the milk themselves is an example of using a spot market, where goods are traded for immediate delivery.

Question 13

If High Tech, a computer manufacturer, has a contract with Big Chips, a computer chip manufacturer, to produce the computer chips needed for High Tech's computers, this is an example of _______.
A)forward integration
B)outsourcing
C)backward integration
D)divestiture

Accepted Answer

Outsourcing involves contracting with another company to perform a specific task or service, which is exactly what High Tech is doing with Big Chips to produce the computer chips needed for their computers. Forward integration involves a company moving forward in the supply chain to control the distribution or sale of its products or services (such as a computer manufacturer opening a retail store), while backward integration involves a company moving backward in the supply chain to control its own inputs (such as a computer manufacturer acquiring a chip manufacturer). Divestiture involves a company selling off a portion of its business or assets. None of these options accurately describe the relationship between High Tech and Big Chips.

Question 14

If Good Smells, a perfume manufacturer, sells its home fragrance line, this is an example of______ .
A)divestiture
B)forward integration
C)backward integration
D)outsourcing

Accepted Answer

Divestiture refers to the sale, liquidation, or spinoff of a corporate division or subsidiary. In this case, Good Smells selling its home fragrance line is an example of divestiture, as the company is selling off a part of its business.

Question 15

If Slick Shades, a sunglasses manufacturer, purchases several local retail shops to sell their sunglasses, this is an example of ______.
A)backward integration
B)outsourcing
C)divestiture
D)forward integration

Accepted Answer

Forward integration is a type of vertical integration where a company expands its business activities by acquiring distributors or retailers that sell its products. In this scenario, Slick Shades is expanding its business by purchasing retail shops to sell their sunglasses directly to customers, which is an example of forward integration.

Question 16

If Happy Avocados, a ready- made guacamole manufacturer, contracts with an outside supplier to produce avocados, this is an example of______ _.
A)backward integration
B)outsourcing
C)forward integration
D)divestiture

Accepted Answer

Outsourcing refers to hiring an outside supplier or contractor to perform a task or service that could be done in-house. In this case, Happy Avocados is outsourcing the production of avocados (an important ingredient in their ready-made guacamole). Backward integration refers to a company integrating with a supplier to control the production of raw materials. Forward integration refers to a company integrating with a distributor or retailer to control the distribution of their products. Divestiture refers to a company selling off a portion of its business or assets.

Question 17

If Fast Prints has a contract with local couriers to deliver their products to customers located throughout the city, this is an example of______ .
A)forward integration
B)a market transaction
C)outsourcing
D)backward integration

Accepted Answer

The answer of If Fast Prints has a contract with...

Question 18

If Bella's Pizza, a local pizzeria, purchases canned tomatoes from a grocery store to make their pizza sauce, this is an example of ______.
A)forward integration
B)backward integration
C)outsourcing
D)using a spot market

Accepted Answer

Using a spot market refers to purchasing goods or services for immediate delivery and payment, which is what Bella's Pizza is doing by buying canned tomatoes from a grocery store.

Question 19

If Happy Cows, a milk producer, purchases a dairy farm, this is an example of______ .
A)outsourcing
B)forward integration
C)backward integration
D)divestiture

Accepted Answer

Backward integration occurs when a company acquires or merges with a company that supplies products or services needed for production. In this case, Happy Cows, a milk producer, purchasing a dairy farm (which supplies the raw milk needed for their production) is an example of backward integration, as it secures their supply chain and potentially reduces costs.

Question 20

The top of the supply chain contains______ and is referred to as the ______end of the chain.
A)finished goods; upstream
B)finished goods; downstream
C)raw materials; downstream
D)raw materials; upstream

Accepted Answer

The top of the supply chain contains raw materials, which are the beginning of the chain. Therefore, the best choice is D, as it correctly identifies raw materials and refers to them as upstream. Choices A and B are incorrect, as finished goods are not at the top of the supply chain, but rather at the end of it. Choice C is also incorrect, as raw materials are not downstream, but upstream.

Quiz 11: Decisions About Vertical Integration and Distribution

If Slick Shades, a sunglasses manufacturer, contracts with an outside supplier to manufacture the lenses for the sunglasses, this is an example of _ ______.

If Happy Avocados, a ready- made guacamole manufacturer, purchases an avocado farm, this is an example of______ .

If Big Dogs, a hot dog producer, purchases delivery trucks to deliver their hot dogs to local grocery stores, this is an example of ______.

If Good Smells, a perfume manufacturer, purchases several local retail shops to sell their perfumes, this is an example of______ .

Big Oranges produces orange juice. To make its juice, Big Oranges harvests oranges from its own farms in addition to purchasing oranges from other locally owned farms. Big Oranges is _______.

If Happy Cows, a dairy manufacturer, sells its sour cream division, this is an example of______ .

If View Your World, a high- end window manufacturer, has contracted with a supplier to produce their glass, this is an example of _ ______.

If a firm requires a standardized raw material to produce its output,______ is often the least expensive option to purchase the raw materials.

The bottom of the supply chain contains and is referred to as the______ end of the chain.

If View Your World, a high- end window manufacturer, has contracted with local carpenters to install their windows in residential homes, this is an example of______ .

If Big Scoops, a local ice cream parlor, purchases milk from a grocery store to make their ice cream, this is an example of______ .

If High Tech, a computer manufacturer, has a contract with Big Chips, a computer chip manufacturer, to produce the computer chips needed for High Tech's computers, this is an example of _______.

If Good Smells, a perfume manufacturer, sells its home fragrance line, this is an example of______ .

If Slick Shades, a sunglasses manufacturer, purchases several local retail shops to sell their sunglasses, this is an example of ______.

If Happy Avocados, a ready- made guacamole manufacturer, contracts with an outside supplier to produce avocados, this is an example of______ _.

If Fast Prints has a contract with local couriers to deliver their products to customers located throughout the city, this is an example of______ .

If Bella's Pizza, a local pizzeria, purchases canned tomatoes from a grocery store to make their pizza sauce, this is an example of ______.

If Happy Cows, a milk producer, purchases a dairy farm, this is an example of______ .

The top of the supply chain contains and is referred to as the end of the chain.