IIA IIA Certifications IIA-CIA-PART3 Questions & Answers

• Question 431:

  Which of the following is an arrangement that involves partial integration and implies the ability to fully support an efficient subunit?

  A. Quasi-integration.

  B. Tapered integration.

  C. Upstream integration.

  D. Contract integration.

  Correct Answer: B

  Tapered (partial) integration implies that the firm can fully support an efficient subunit but has additional needs to be met in the market. If the in-house subunit will not be efficient, that inefficiency must be weighed against the benefits of tapering. Tapering resultsin lower fixed costs than full integration. Furthermore, the strategy may allow the firm's subunit(s) to maintain constant production rates while external parties bear the risk of fluctuations. Another use of tapering is to protect against operational imbalances among the subunits. A risk of tapering is selling to, or buying from, competitors. Another is greater coordination cost. Advantages of tapering are avoidance of locked-in relationships, some access to external expertise, increased managerial incentives, offering a credible threat of full integration to suppliers or customers, and obtaining knowledge of the adjacent business and an emergency supply source.

• Question 432:

  The decision to engage in the vertical integration of a firm is in large part a function of an analysis of throughput and economies of scale. If throughput is less than the efficient scale, the firm:

  A. Should acquire a capability equal to the firm's throughput.

  B. Must sell or buy in the open market if the firm vertically integrates at the efficient scale.

  C. Should engage in quasi-integration.

  D. Should not vertically integrate.

  Correct Answer: B

  Upstream (backward) or downstream (forward) integration is the acquisition of a capability that otherwise would be performed by external parties that are suppliers or customers, respectively, of the firm. Whether integration should occur depends on the firm's volume of transactions with the external parties (throughput) and the magnitude of the capability required to achieve necessary economies of scale. If the integrating firm's need is for a capability less than the efficient scale, one of its options is to acquire a capability with a cost inefficient scale. The other option is to acquire an efficient capability that provides excess output (in the upstream case) orcreates excess demand (from, for example, a distribution capability in the downstream case). This option will require the integrated firm to sell or buy in the open market. Thus, the second option carries the risk of having to deal with competitors.

• Question 433:

  Backward integration strategy is most appropriate when the firm's current suppliers are:

  A. Highly reliable.

  B. Not reliable.

  C. Geographically dispersed.

  D. Geographically concentrated.

  Correct Answer: B

  Backward integration is appropriate when the firm's current suppliers are unreliable. Stable relationships between internal sellers and buyers create economies because they need not fear loss of the related buyers and sellers. They also need not fear undue economicpressure from each other. Furthermore, because the relationship is locked in, more efficient procedures for their relationship (e.g., dedicated controls and records) may be implemented. Another advantage is that internal sellers and buyers may more fully adapt to each other's needs than they would or could in dealings with outsiders.

• Question 434:

  Entry into a new business may be by acquisition. An acquisition is most likely to earn aboveaverage profits when:

  A. The firm has competition from an irrational bidder.

  B. The economy is strong.

  C. The firm pays the seller a premium over the expected present value to the seller.

  D. The firm has a unique ability to operate the seller.

  Correct Answer: D

  The buyer may have a unique ability to operate the seller. Thus, the buyer may (1) be uniquely able to improve operations or

  (2) purchase a firm in an industry that meets one of the conditions for an internal entrant to earn above-average profits (e.g., low entry costs or disequilibrium).

• Question 435:

  A long-term supplier has asked your company to negotiate some increased purchases and faster payment. The supplier is having some financial difficulty, but your firm has been quite profitable lately, having experienced growing sales. Your firm's best negotiation strategy is:

  A. Collaboration.

  B. Competition.

  C. Subordination

  D. Avoidance.

  Correct Answer: C

  The supplier should be allowed to take the lead in making proposals. The firm should go along with anything reasonable.

• Question 436:

  Which of the following would be the best approach for negotiating the purchase of a large number of

  microcomputers, assuming that both parties follow the same approach?

  A. Review previous demands, concessions, and settlements (precedents).

  B. Attempt to get personal information about the opposing negotiators.

  C. Enter without preconceived ideas about what should be accomplished.

  D. Ask as few questions as possible during negotiations.

  Correct Answer: A

  The best approach to negotiating a large purchase, assuming that both parties follow the same approach, is to review previous settlements, demands, and concessions to determine what can be achieved. The history of past practices and interactions tends to define current standards of fairness in negotiations.

• Question 437:

  There are many types of third-party negotiations available to parties facing disagreement. If the goal is to be certain that settlement is reached, a negotiator with authority to make a decision should be selected. The best negotiator to select, given this goal, would be a(n):

  A. Mediator.

  B. Arbitrator.

  C. Consultant.

  D. Conciliator.

  Correct Answer: B

  An arbitrator has the authority to impose an agreement. Arbitration may be requested by the parties or may be imposed by law or by the terms of a contract.

• Question 438:

  Which of the following is a benefit of the communication link represented by negotiating employee-supervisor differences?

  A. Each employee perceives that management values his/her accomplishments.

  B. A written communication link between the employees and management is provided.

  C. Each employee is shown that management values his/her rights and needs.

  D. The need for an informal grapevine is reduced.

  Correct Answer: C

  The benefits of negotiating employee-supervisor differences include communicating both sides of an issue without litigation, recognizing employee concerns to indicate that management values each subordinate's needs and rights, and impartially treating tensions in the work environment while finding compromise solutions.

• Question 439:

  A construction manager is using a distributive-bargaining approach in negotiating the price of lumber with a supplier. The construction manager will:

  A. Concede to the supplier's asking price in order to maintain a positive working relationship.

  B. Hire a mediator to negotiate the deal on behalf of the manager.

  C. Attempt to get agreement on a price within the settlement range (that is, within both the manager's and supplier's aspiration ranges).

  D. State the resistance point (that is, the highest price acceptable) and ask the supplier to concede.

  Correct Answer: C

  When using a distributive-bargaining approach, the negotiator operates with a maximum desired result (target point) and a minimum acceptable result (resistance point) in mind. If the ranges of feasible outcomes (aspiration ranges) overlap, an agreement is possible.

• Question 440:

  The method of principled negotiation is based on which of the following principles?

  I. Separate the people from the problem.

  II. Focus on positions, not interests.

  III. Invent options for mutual gain.

  IV.

  Insist on using subjective criteria.

  A.

  I and II only.

  B.

  I and Ill only.

  C.

  I, II, and Ill only.

  D.

  II, Ill, and IV only.

  Correct Answer: B

  The principled negotiation method focuses on basic interests, mutually satisfying options, and fair standards. The basic principles include (1) separating the people from the problem; (2) focusing on interests, not positions; (3) inventing options for mutual gain; and (4) insisting on using objective criteria.