Question

Internal resources, such as the legal department, training department, information technology department, tend to be under-utilized, leading to a death spiral, when: a. the internal pricing system utilizes full costs b. All of the answers are correct c. managers may decide to reduce the quantity of services used d. the internal pricing system seeks to recover sunk costs e. managers may choose whether to purchase the service internally or externally

Answer 1

Answer:

b. All of the answers are correct.

Explanation:

Death Spiral is a situation when a company's goods or services produced are declining and fixed cost is same. The company will be exposed to a burden of fixed cost if its output is reduced.  

In this question the various departments of a company are underutilized. The fixed price allocated to each department will be same hence creating a burden on a company's funds. Managers may decide to reduce the services they use to reduce the cost of their department. The internal pricing system will start recovering the sunk cost of company. Managers will also consider purchasing services internally or externally whichever is cost effective. All of the statements are correct there b is correct option.