CharuKapoor wrote:
Holiday receipts—the total sales recorded in the fourth quarter of the year—determine the economic success or failure of many retail businesses. Camco, a retailer selling just one camera model, is an excellent example. Camco's holiday receipts, on average, account for a third of its yearly total receipts and about half of its yearly profits.
If the statements above are true, which of the following must also be true about Camco on the basis of them?
Many retail businesses make a living on sales from the fourth quarter, i.e. holiday receipts. For Camco the receipts on average account for 1/3 of Total yearly receipts and for 1/2 Total yearly profits.
\(\frac{Number[Q_4]}{Number[Q_1+Q_2+Q_3+Q_4]}=\frac{1}{3}\)
\(\frac{Profit[Q_4]}{Profit[Q_1+Q_2+Q_3+Q_4]}=\frac{1}{2}\)
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(A) Its fixed expenses per camera sold are higher during the fourth quarter than for any of the other three quarters.
The expenses could be lower, same or higher. Dependant on the selling price, the equations would still be true.
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(B) It makes more profit during the first and third quarters combined than during the fourth quarter.
What about the second quarter? We cannot split the year in this way, since the argument distinguishes between the fourth quarter and the rest three quarters.
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(C) Its per-camera retail price is lower, on average, during the fourth quarter than during any one of the first three quarters.
May be true: Camco sells many more cameras during the 4th quarter than during the rest of the year. Economies of scale.
May not be true: Camco sells the average number of cameras at higher price, thus gaining greater profit.
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(D) It makes less profit, on average, for a given dollar amount of sales during the first three quarters combined than during the fourth quarter.
Must be true. Key words: "
on average, for a given dollar amount of sales". Look at the equations.
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(E) The per-camera price it pays to wholesalers is higher, on average, during the fourth quarter than during any of the other three quarters.
Wrong for the same reason as A.