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Denoma, a major consumer-electronics maker, had a sizeable [#permalink]
28 Jan 2006, 07:15
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Denoma, a major consumer-electronics maker, had a sizeable decline in sales revenue for its most recent fiscal year. This result appears surprising, because electronics retailers report that although their overall sales were considerably lower than in the previous year, their sales revenue from Denoma models actually grew, largely thanks to some innovative and popular models that Denoma introduced.
Which of the following, if true, does most to explain the apparently surprising result?
A. Because of the need to educate the public about its new modelsâ€™ capabilities, Denomaâ€™s advertising spending was higher than normal over the period.
B. For the period at issue, Denomaâ€™s major competitors reported declines in revenue that were, in percentage terms, greater than Denomaâ€™s.
C. A significant proportion of Denomaâ€™s revenue comes from making components for other consumer-electronics manufacturers.
D. Unlike some of its major competitors, Denoma has no lines of business outside consumer electronics to provide revenue when retail sales of consumer electronics are weak.
E. During the period, consumer-electronics retailers sold remaining units of Denomaâ€™s superseded models at prices that were deeply discounted from those modelsâ€™ original prices.
This mind bender took me almost 5 minutes to solve. At last I came to the conclusion that the answer must be (C) by POE and logic. If a significant portion of their sales come from components sales to other competing consumer electronics firms, then it logically follows that they have lost revenue because of the industry wide decrease in sales.
As the sales revenue have declined for Denoma also, but the argument also says that retailers have said "sales revenue from Denoma models actually grew" this means more number of Denoma models had been sold.
Option (E) states - "During the period, consumer-electronics retailers sold remaining units of Denomaâ€™s superseded models at prices that were deeply discounted from those modelsâ€™ original prices."
Which includes explanation of decreasing Denoma revenues as no new purchases were made by retailers from Denoma but they sold remaining sets, also since a higher no. of units were sold this explains why retailers had higher revenue from Denoma products
C could attempt to explian only a part of the story- that Denoma makes products for other companies and due to a slump its sales suffered but doesnt explain why the retailers should enjoy higher Denoma product sales
whereas E, makes it clear- during the sales lsump, the retailers sold other models of Denoma products at a steep disc- which increased their sales and on the other hand, the slump contributed to declining sales of Denoma.
Check out this awesome article about Anderson on Poets Quants, http://poetsandquants.com/2015/01/02/uclas-anderson-school-morphs-into-a-friendly-tech-hub/ . Anderson is a great place! Sorry for the lack of updates recently. I...