It is currently 12 Dec 2017, 19:46

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# Events & Promotions

###### Events & Promotions in June
Open Detailed Calendar

# Companies considering new cost-cutting manufacturing

Author Message
TAGS:

### Hide Tags

Intern
Joined: 13 Jul 2007
Posts: 1

Kudos [?]: [0], given: 0

Companies considering new cost-cutting manufacturing [#permalink]

### Show Tags

13 Jul 2007, 22:19
00:00

Difficulty:

(N/A)

Question Stats:

0% (00:00) correct 0% (00:00) wrong based on 4 sessions

### HideShow timer Statistics

1) Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
(A) The costs of materials required by the new process might not be known with certainty.
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
(C) Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
(D) Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.

What is the answer? And how do you arrive at it? Please explain. Thanks.

Kudos [?]: [0], given: 0

Senior Manager
Joined: 06 Jul 2004
Posts: 467

Kudos [?]: 145 [0], given: 0

Location: united states
Re: Companies considering new cost-cutting manufacturing [#permalink]

### Show Tags

13 Jul 2007, 23:08
Sita wrote:
1) Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
(A) The costs of materials required by the new process might not be known with certainty.
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
(C) Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
(D) Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.

What is the answer? And how do you arrive at it? Please explain. Thanks.

Sita, the whole point of investment and not investment is one and only one. Making money work for the company. That means that if there is not apparent advantage, the companies would rather keep the money in the bank. If a competitor is taking the market share because it has invested in the new technology, the company is not really saving any money. It is loosing the already invested money. The criteria is that the selling price and the market share should remain constant, but it doesn't in this case.

So, D should be the answer.
_________________

for every person who doesn't try because he is
afraid of loosing , there is another person who
keeps making mistakes and succeeds..

Kudos [?]: 145 [0], given: 0

Senior Manager
Joined: 18 Jun 2007
Posts: 285

Kudos [?]: 66 [0], given: 0

Re: Companies considering new cost-cutting manufacturing [#permalink]

### Show Tags

14 Jul 2007, 13:39
Sita wrote:
1) Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
(A) The costs of materials required by the new process might not be known with certainty.
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
(C) Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
(D) Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.

What is the answer? And how do you arrive at it? Please explain. Thanks.

What can cause the most serious disadvantage for companies using the method above for evaluating the financial benefit of new manufacturing processes?

a situation where companies which has already adopted such method will be unable to analyse correctly.

B: It talks abt future scenario of loan market....not relevent in terms of
this ques.
C. It suggest abt a future problem which isn't related to question stem.
might require heavy investment was never a consideration.
D. Irrelevent in he context of this problem. even comptiors had adopted
that method.
E. Again abt a problem which doesn't agree wih question stem.

Now A: making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.

When cost is uncertain this will attack the very basis of analsys......the biggest disadvantage.

Kudos [?]: 66 [0], given: 0

Director
Joined: 29 Jul 2006
Posts: 851

Kudos [?]: 144 [0], given: 0

Re: Companies considering new cost-cutting manufacturing [#permalink]

### Show Tags

14 Jul 2007, 20:00
shoonya wrote:
Sita wrote:
1) Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
(A) The costs of materials required by the new process might not be known with certainty.
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
(C) Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
(D) Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.

What is the answer? And how do you arrive at it? Please explain. Thanks.

Sita, the whole point of investment and not investment is one and only one. Making money work for the company. That means that if there is not apparent advantage, the companies would rather keep the money in the bank. If a competitor is taking the market share because it has invested in the new technology, the company is not really saving any money. It is loosing the already invested money. The criteria is that the selling price and the market share should remain constant, but it doesn't in this case.

So, D should be the answer.

Agree with shoonya...D offers an alternative point that can hurt the company.

Kudos [?]: 144 [0], given: 0

Director
Joined: 17 Sep 2005
Posts: 901

Kudos [?]: 118 [0], given: 0

Re: Companies considering new cost-cutting manufacturing [#permalink]

### Show Tags

14 Jul 2007, 20:21
Sita,

First look at the assumption made in the desicion making process.
Here costs, selling prices, and share of market are assumed to be constant.
Any change in these values will result in change in the outcome(s) of the decision.
If competitor will reduce the selling price and take away the market share then it's the loss for the companies using mentioned method to make desicion about future investment.

So D is the right choice.

- Brajesh

Kudos [?]: 118 [0], given: 0

Verbal Forum Moderator
Joined: 13 Feb 2015
Posts: 812

Kudos [?]: 9 [0], given: 32

Re: Companies considering new cost-cutting manufacturing [#permalink]

### Show Tags

19 Mar 2017, 15:04
Already discussed previously. Please, refer to the discussion above: https://gmatclub.com/forum/companies-co ... fl=similar
_________________

Kudos [?]: 9 [0], given: 32

Re: Companies considering new cost-cutting manufacturing   [#permalink] 19 Mar 2017, 15:04
Display posts from previous: Sort by

# Companies considering new cost-cutting manufacturing

 Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.