Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What happens during the product growth phase?

1. Demand declines and production decreases

2. Demand grows and production is increased

3. The product faces decreased competition

4. Costs of production begin to rise significantly

The correct answer is: Demand grows and production is increased

During the product growth phase, demand for the product significantly increases as more consumers become aware of it and begin to purchase it. This rising demand leads to a need for higher production volumes to meet market needs, prompting businesses to scale up their operations. Companies often invest in improving production efficiency and may expand their distribution channels to capitalize on the increasing market interest. This phase is characterized by rapid revenue growth as the product gains traction in the market. Businesses may also experience improved profitability during this time, as fixed costs are spread over a larger volume of sales. Additionally, as the product becomes more established, companies may seek to enhance their marketing efforts to promote brand loyalty and further increase market share. In contrast, other phases mentioned, such as declining demand or rising production costs, do not accurately represent the growth phase's dynamics. During this time, the focus is on capturing ongoing demand and optimizing production capabilities to sustain momentum in the market.