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A company determines its yearly profits by deducting its operating exp

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A company determines its yearly profits by deducting its operating exp  [#permalink]

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New post 13 Jul 2018, 02:29
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A company determines its yearly profits by deducting its operating expenses from its revenue for that year. Company X manufactures only widgets and gadgets. Company X's profits for this year are significantly higher than those for last year, although the company's operating expenses remained the same and the company sold the same number of widgets and gadgets as it did last year.

The statements above, if true, best support which of the following conclusions?


A. Consumers purchased more widgets and gadgets this year than they did last year.

B. Company X has raised the price of its widgets or of its gadgets since last year.

C. Company X's main competitors sold fewer widgets and gadgets this year than they did Company X.

D. Company X introduced a new type of widget this year.

E. Company X spent more on advertising this year than it did last year.

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Re: A company determines its yearly profits by deducting its operating exp  [#permalink]

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New post 13 Jul 2018, 02:43
Bunuel wrote:
A company determines its yearly profits by deducting its operating expenses from its revenue for that year. Company X manufactures only widgets and gadgets. Company X's profits for this year are significantly higher than those for last year, although the company's operating expenses remained the same and the company sold the same number of widgets and gadgets as it did last year.

The statements above, if true, best support which of the following conclusions?


A. Consumers purchased more widgets and gadgets this year than they did last year.

B. Company X has raised the price of its widgets or of its gadgets since last year.

C. Company X's main competitors sold fewer widgets and gadgets this year than they did Company X.

D. Company X introduced a new type of widget this year.

E. Company X spent more on advertising this year than it did last year.


Given: Profits = Revenue - Operational Costs
Revenue = Revenue per Item times number of items sold.

Now we're told that the number of items sold is the same and the Operational costs are same, yet the profit earned is higher, the only possible way to increase the Revenue is by increasing Revenue per item i.e. Price of widgets has been raised. Option B
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Re: A company determines its yearly profits by deducting its operating exp  [#permalink]

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New post 13 Jul 2018, 02:54
Bunuel wrote:
A company determines its yearly profits by deducting its operating expenses from its revenue for that year. Company X manufactures only widgets and gadgets. Company X's profits for this year are significantly higher than those for last year, although the company's operating expenses remained the same and the company sold the same number of widgets and gadgets as it did last year.


Stimulus :
Company X Profit = Revenue - Operating expenses
Profit Now > Profit Last

Pre-thinking:
So, there is no change in latter determining factor of Company X's Profit i.e, Operating expenses, and number of items sold is also the same.
What could be the deciding factor?? ....The price of each item this year

B. Company X has raised the price of its widgets or of its gadgets since last year. --> Correct, matches our pre-thinking

Hence, B.
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Re: A company determines its yearly profits by deducting its operating exp  [#permalink]

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New post 22 Jan 2020, 07:29
PRE-THINKING

1. The 4 elements of Profitability equation

a. Profit = (SP – CP) * No. of Units
i. Profit
ii. Selling Price per unit
iii. Cost Price per unit
iv. The number of units sold

2. If one element changes, say for example Profit increases in a certain period, it will also force at least one of the other elements to change. For example, Profit could increase because of
i. An increase in unit selling price, or
ii. A decrease in unit cost price, or
iii. An increase in the number of units sold in the period

3. In the given argument, we are told that operating expenses remained same. Thus (ii) could not have happened.

4. Since (iii) also did not take place, the only thing that must have changed is (i)

a. Inference: Company X raised the price/s of its product/s this year.

ANSWER CHOICE ELIMINATION

A. Consumers purchased more widgets and gadgets this year than they did last year.
(Per the passage, the consumers certainly did not purchase more widgets and gadgets this year from Company X than they did last year. They might have purchased more widgets and gadgets from other companies but that cannot be inferred from the passage. Out of scope
Incorrect Choice.)

B. Company X has raised the price of its widgets or of its gadgets since last year.
(This is in line with our pre-thought inference.
Correct Choice)

C. Company X's main competitors sold fewer widgets and gadgets this year than did Company X.
(No data is given in the passage to conclude anything about the sales of Company X’s main competitors. Out of scope.
Incorrect Choice)

D. Company X introduced a new type of widget this year.
(No discussion on the type of widget made or sold by Company X. Out of scope.
Incorrect Choice.)

E. Company X spent more on advertising this year than it did last year.
(If advertising costs are considered a part of the operating costs, then this choice is just the opposite of the data given in the passage. Other than that, nothing can be inferred about the advertising costs.
Incorrect Choice)
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Re: A company determines its yearly profits by deducting its operating exp   [#permalink] 22 Jan 2020, 07:29
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