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# A U.S. car company reported a 2004 second-quarter net income

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A U.S. car company reported a 2004 second-quarter net income [#permalink]

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29 Jun 2008, 09:22
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A U.S. car company reported a 2004 second-quarter net income of $450 million, compared with$350 million in the second quarter of 2003. This increase was realized despite a drop in car sales at the end of the year due to a weakening economy and rising interest rates.
Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer ’s net income?
A. During the second quarter of 2004, the manufacturer announced a new convertible in its line of products.
B. In the second quarter of 2004, the manufacturer paid no wages during a six-week strike, but on-hand stock was adequate to supply dealers.
C. This particular car company does most of its business outside the U.S..
D. Official dealers of the manufacturer had low supplies during the second quarter of 2004.
E. The company instituted a large incentive program to offer financial discounts in the second quarter of 2004.
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Re: CR -U.S. car company [#permalink]

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29 Jun 2008, 09:44
E
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Re: CR -U.S. car company [#permalink]

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29 Jun 2008, 13:30
IMO C,

A U.S. car company reported a 2004 second-quarter net income of $450 million, compared with$350 million in the second quarter of 2003. This increase was realized despite a drop in car sales at the end of the year due to a weakening economy and rising interest rates.
Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer ’s net income?
A. During the second quarter of 2004, the manufacturer announced a new convertible in its line of products.
Great, so???
B. In the second quarter of 2004, the manufacturer paid no wages during a six-week strike, but on-hand stock was adequate to supply dealers.
hmm, well income is different from revenue. This would have helped revenue build up, nothing on the income side...
C. This particular car company does most of its business outside the U.S..
True, the tricky use of the word 'weakening economy' specifies sales within a country, so if cars were sold elsewhere, where the economy was booming.....hell yea...sales would increase and so would income...
D. Official dealers of the manufacturer had low supplies during the second quarter of 2004.
counter productive
E. The company instituted a large incentive program to offer financial discounts in the second quarter of 2004.
discounts are bad in this case....would lead to a decrease in income unless it is countered by an increase in sales which is not the case!! BOOM!!
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Re: CR -U.S. car company [#permalink]

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29 Jun 2008, 19:11
i picked C as well ....
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Re: CR -U.S. car company [#permalink]

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29 Jun 2008, 21:00
I posted this Q as I had got this one wrong in my practice with Score800 tests.

OA is B.

For me, this Q was stupid and I don't agree with OA. What do u guys say.

OE:
(B) During a strike where no wages were paid, the company ’s expenses would drop considerably. So long as the dealers had inventory, the sales would proceed normally. Thus, the company ’s sales should be constant with decreasing expenses. This would produce a net profit increase despite the weakening economy and poor sales. Choices (A), (D), and (E) aren ’t relevant to the issue of 2003/2004 profit comparisons. Choice (C) could explain a net increase in profit despite the economy, but only if the international sales increased enough to counteract the poor sales in the U.S., which we have no evidence to conclude. The best answer is (B).

Do you agree ???
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Re: CR -U.S. car company [#permalink]

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30 Jun 2008, 08:26
But that isn't income....well when you ask someone what's your income, he/she would not say...well I get about $4000 and i save$2000...hence my income is \$6000..??? The correlation between income and revenue is not valid with option B....
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Re: CR -U.S. car company [#permalink]

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30 Jun 2008, 10:31
For me it was apparent that the answer for B and I think the explanation is pretty good. The long term outlook for the company might suffer but for that particular quarter the lower wages would result in a positive "NET" revenue

huntgmat wrote:
I posted this Q as I had got this one wrong in my practice with Score800 tests.

OA is B.

For me, this Q was stupid and I don't agree with OA. What do u guys say.

OE:
(B) During a strike where no wages were paid, the company ’s expenses would drop considerably. So long as the dealers had inventory, the sales would proceed normally. Thus, the company ’s sales should be constant with decreasing expenses. This would produce a net profit increase despite the weakening economy and poor sales. Choices (A), (D), and (E) aren ’t relevant to the issue of 2003/2004 profit comparisons. Choice (C) could explain a net increase in profit despite the economy, but only if the international sales increased enough to counteract the poor sales in the U.S., which we have no evidence to conclude. The best answer is (B).

Do you agree ???
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Re: A U.S. car company reported a 2004 second-quarter net income [#permalink]

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04 Jun 2016, 23:29
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: A U.S. car company reported a 2004 second-quarter net income   [#permalink] 04 Jun 2016, 23:29
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