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A United States manufacturer of farm equipment reported a

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A United States manufacturer of farm equipment reported a [#permalink] New post 05 Jan 2005, 20:46
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A United States manufacturer of farm equipment reported a 1988 third-quarter net income of $32 million, compared with $25.5 million in the third quarter of 1987. This increase was realized despite a drop in United States retail sales of farm equipment toward the end of the third quarter of 1988 as a result of a drought.

Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer’s net income?

(A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products.

(B) In the third quarter of 1988, the manufacturer paid no wages during a six-week strike, but stocks on hand were adequate to supply dealers.

(C) Sales in the United States of farm equipment made and sold by foreign companies were higher in the third quarter of 1988 than in any previous quarter.

(D) Official dealers of the manufacturer had low supplies of farm equipment during the third quarter of 1988.

(E) Eligible United States farmers benefited from a federal drought-relief fund late in the third quarter of 1988.
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 [#permalink] New post 05 Jan 2005, 22:48
A for me

Irrigation systems , if added to the company's portfolio will increase sales as irrigation is something most required during droughts
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 [#permalink] New post 06 Jan 2005, 06:14
Pick B.

C,D & E are out of scope.

A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products

- They just announced that they would add irrigation systems, it does not say they sold irrigation systems to counter the drought...
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 [#permalink] New post 06 Jan 2005, 08:41
OA is B.

I could have answered B by POE but still don´t get it.Please explain in more detail.

thanks
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 [#permalink] New post 06 Jan 2005, 09:13
Its B.

(A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products.
----This no way explains why sales of manufacturer increased and retail sales decreased.

(B) In the third quarter of 1988, the manufacturer paid no wages during a six-week strike, but stocks on hand were adequate to supply dealers.
----saving of labor costs added to increased profits for the manufacturer.

(C) Sales in the United States of farm equipment made and sold by foreign companies were higher in the third quarter of 1988 than in any previous quarter.
---negates the conclusion.


(D) Official dealers of the manufacturer had low supplies of farm equipment during the third quarter of 1988.

---low supplies means low sales so less net income hence contradicts the conclusion.


(E) Eligible United States farmers benefited from a federal drought-relief fund late in the third quarter of 1988.

So retail sales should increase!!! but they haven't hence this is not the answer...
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 [#permalink] New post 06 Jan 2005, 10:27
I choose A which is close, but the OA is B. Saving salary expense is ok, but what is hard to get is sales keeps rolling during the drought.
The announcement during the 3rd quarter in A does not explain well enough I think.

:roll:
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 [#permalink] New post 06 Jan 2005, 10:51
A is my choice. Only one that is remotely relevant to the issue on hand (Sales/Revenue vs. expenses)
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 [#permalink] New post 06 Jan 2005, 10:52
retrack. should be B as the subject is Net income and not revenue.
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 [#permalink] New post 03 Apr 2005, 07:44
jinino wrote:
I choose A which is close, but the OA is B. Saving salary expense is ok, but what is hard to get is sales keeps rolling during the drought.
The announcement during the 3rd quarter in A does not explain well enough I think.

:roll:


The farmer is already facing drought . So a addition of a feature to farm equipment doesnt necessarily excite him to buy the farm equiment right?

B has the company save money by not paying employee on strike...So that concretely saved money without any big assumptions
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 [#permalink] New post 03 Apr 2005, 08:11
I picked B just because it's stronger than A and in addition when demand drops it's more reasonable to find another factor (and in this case a decrease in labour cost is actually suitable) that makes profits rise.

My reasoning:
Profits go up -> more sales OR less costs
in this case, less costs are more likely to be what happened
  [#permalink] 03 Apr 2005, 08:11
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