MTEL Business Practice Exam

Category - Business Operations

In which of the following situations would it be most advantageous for a company to outsource a portion of its production to a qualified independent vendor?
  1. Production has been switched from a batch to a continuous-flow process, and efficiency in all phases of production has increased.
  2. Several new production lines have been recently added, but future demand for the product is likely to drop due to a recession.
  3. Production facilities are operating close to full capacity, and managers expect a rapid increase in demand for the product.
  4. A new product has just been added to the product line, but problems with quality control have not yet been eliminated.
Explanation
Correct Response: C. Outsourcing involves sending some or all production to specialized vendors and may reduce the cost of production and overhead. If a company's production facilities are at capacity and product demand continues to rise, outsourcing some production is likely to be a good business strategy for meeting demand. Adopting a new manufacturing process that is more efficient (A) would meet demand and would not require outsourcing. Increasing production lines while demand decreases 
(B) would result in overproduction and not require outsourcing. Outsourcing the production of a new product before quality control issues have been resolved (D) would likely result in a less-than desirable product.
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