One name brand cereal manufacturer...

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One name brand cereal manufacturer... [#permalink]

29 Dec 2012, 14:20

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One name brand cereal manufacturer...

OA is NOT B. Can someone help me understand what the words "pass on" mean in the sentence "supermarkets will pass on savings...."

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Re: Question from GMAT Question Pack [#permalink]

29 Dec 2012, 16:13

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In this plan, manufacturer is planning to sell the product store at reduced wholesale price expecting that it will "Pass on" this reduced price to end customer.

For example:
Current situation:
Wholesale price to store: $8, Manufacturer Product: MRP- $12
Store Product: MRP- $10
In this case consumer is switching to Store brand as its cheaper (by $2)

Proposed situation:
Wholesale price to store: $6 (note 20% reduction), Manufacturer Product: MRP- $12, Expected Discounted consumer price: $10
Store Product: MRP- $10

Explanation:
In this case the manufacturer assumes that the store will sell manufacturer's product at discounted price down to $10 from $12 (i.e. will "pass on these savings" to consumer) With both the products priced same, it will eliminate the price incentive for consumers who are switching produces based on the price. However as the manufacturer is not reducing the price on MRP but wholesale prices, Store will not give discount to the customer and will still continue sell at MRP $12, making sure they continue to sell their store cereal product at cheaper price.

D is the correct answer.
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Last edited by PraPon on 01 Jan 2013, 10:45, edited 1 time in total.

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Re: Question from GMAT Question Pack [#permalink]

29 Dec 2012, 18:04

Thanks Prapon for providing some insight. But in the proposed solution which you mentioned, why did you again add 20% more discount? You have applied 20% (acc to current situation) + another 20% which is equivalent to 40%. Can you clarify?

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Re: Question from GMAT Question Pack [#permalink]

29 Dec 2012, 23:37

I guess I applied 20% applied only on wholesale price. In short - The manufacturer plans to reduce the wholesale price of the product from $8 to $6 (by 20%) and assumes that store will "pass on" that discount/savings to consumer by selling the product at $10 (discounted price) instead of $12 (MRP).
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Re: Question from GMAT Question Pack [#permalink]

30 Dec 2012, 09:28

The software reported what level of difficult on such question ??
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Re: Question from GMAT Question Pack [#permalink]

31 Dec 2012, 15:37

Its a MEDIUM level difficulty question

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Re: Question from GMAT Question Pack [#permalink]

01 Jan 2013, 04:54

OA added

D is for sure. let me know
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Re: Question from GMAT Question Pack [#permalink]

01 Jan 2013, 10:46

Yes D is the correct answer Carcass.
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Re: Question from GMAT Question Pack [#permalink] 01 Jan 2013, 10:46

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