Understanding the Passage
A company’s two divisions performed with remarkable consistency over the past three years:- Two divisions of a company performed very consistently over the past three years.
in each of those years, the pharmaceuticals division has accounted for roughly 20 percent of dollars sales and 40 percent of profits, and the chemicals division for the balance. - In each of the past three years,
P division accounted for 20% of dollar sales and 40% of profits
C division accounted for 80% of dollar sales and 60% of profits
When I look at these facts, one thing immediately stands out: P division generates more profits for every dollar of sales than C division.
Let me first explain what profit per dollar of sales means. In essence, it is a measure of the profitability of a company. It means that if a company generates 1 dollar of sales, how much profit does it generate? Let’s say that it generates $0.2 of profits. Its profit per dollar of sales is 0.2.
Or, if a company generates $100,000 of sales and its profits are $1000, its profit per dollar of sales is (1000/100000) 0.01.
Now, let’s understand how I can say that P division generates more profits for every dollar of sales than C division.
Let’s say that if P and C both generated the same profit for every dollar of sales, then P division should have accounted for 20% of profits. Why? Because it accounts for 20% of dollar sales, and if profit per dollar of sale is the same, then it should account for 20% of profits too.
However, P accounts for a much larger proportion of profits. Thus, P must be generating more profit for every dollar of sales than the company as a whole.
By the same logic, C division must be generating less profit per dollar of sales than the company as a whole.
Thus, P must be generating more profit per dollar of sales than C
Option Evaluation
(A)Total dollars sales for each of the company's divisions have remained roughly constant.
Incorrect- .We cannot say anything about the total dollar sales of the divisions. The total dollar sales could have increased, decreased, or remained the same. The consistency of performance is in terms of the individual divisions’ share of the company’s profits and sales, not in terms of their own sales and profits. If the company’s sales increased over the last three years, the sales of the two individual divisions also increased.
(B) The pharmaceuticals division has faced stiffer competition in its markets than has the chemicals division.
Incorrect- . This option is actually in the wrong direction. Given the facts, we understood that P division generated more profit per dollar of sales than C division. Thus, it seems rather likely that P division faced less competition than C division.
Let’s reverse the option and say:
The chemical division has faced stiffer competition in its markets than has the pharmaceutical division.
Even this option is wrong. While we know that C division had lower profit per sales than P division, we don’t know the reason for its lower profit per sales. The reason might not be stiffer competition; the reason could be lower efficiency of the C division.
(C)The chemical division has realized lower profits per dollars of sales than has the pharmaceuticals division.
Correct- . This option can be inferred, as I explained in the passage analysis.
(D) The product mix offered by each of the company's divisions has remained unchanged.
Incorrect- . The product mix might have COMPLETELY changed for the two divisions. The new products may have the same profitability (profit per sales); thus, whether the product mix has changed cannot be inferred at all from the given data about sales and profits.
(E) Highly profitable products accounted for a higher percentage of the chemicals division's sales than of the pharmaceuticals division's.
Incorrect- . This option is actually in the wrong direction. Given the facts, we understood that P division generated more profit per dollar of sales than C division. Thus, it seems reasonable to think that highly profitable products accounted for a higher percentage of the P division’s sales than of the C division’s.
So, can we infer the reverse of the option?
Can we infer the following statement?
Highly profitable products accounted for a higher percentage of the pharmaceutical division’s sales than of the chemical division’s.
No. We cannot infer (cannot be 100% sure about) this statement even though this is supported by the facts.
We cannot infer this changed option because it’s possible that highly profitable products account for the same or even lower percentage of the P division’s sales as of the C divisions’ sales.
You may wonder, “how then can P division’s profits be higher than C division’s”?
It’s possible that P’s highly profitable products are much more profitable than C division’s highly profitable products, and thus, even though they may account for the same proportion of P division’s sales, they lead to higher overall profitability of the P division.
(If you find any spelling or grammatical errors, please feel free to point them out. I haven’t checked for these errors in the above solution.)
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