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Fact 11.3.1 A Pepsi, A Business Decision
PepsiCo has done a deal with 300 small Mexican farmers close to their two factories to buy corn at a guaranteed price. PepsiCo saves transportation costs and the use of local farms assures it access to the type of corn best suited to its products and processes. "That gives us great leverage because corn prices don't fluctuate so much, but transportation costs do," said Pedro Padierna, president of PepsiCo in Mexico.
Source: The New York Times, February 21, 2011
-Refer to Fact 11.3.1. The deal with farmers to avoid fluctuations in costs benefits PepsiCo for all the following reasons except
A)the type of corn it is buying is best suited to its products.
B)it eliminates variable costs.
C)transportation costs are lower.
D)corn costs remain low and stable.
E)the type of corn it is buying is best suited to its processes.

Question

Quizplus · Accepted Answer

The deal does not eliminate all variable costs, only transportation costs. The type of corn being bought is best suited to PepsiCo's products and processes, and corn costs remain low and stable, but the deal does not completely eliminate all variable costs.

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