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# A United States manufacturer of farm equipment reported a

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Director
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A United States manufacturer of farm equipment reported a  [#permalink]

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Updated on: 15 Mar 2018, 22:46
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65% (hard)

Question Stats:

58% (01:18) correct 42% (01:43) wrong based on 235 sessions

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A United States manufacturer of farm equipment reported a 1988 third-quarter net income of \$32 million, compared with \$25.5 million in the third quarter of 1987. This increase was realized despite a drop in United States retail sales of farm equipment toward the end of the third quarter of 1988 as a result of a drought.

Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer’s net income?

(A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products.

(B) In the third quarter of 1988, the manufacturer paid no wages during a six-week strike, but stocks on hand were adequate to supply dealers.

(C) Sales in the United States of farm equipment made and sold by foreign companies were higher in the third quarter of 1988 than in any previous quarter.

(D) Official dealers of the manufacturer had low supplies of farm equipment during the third quarter of 1988.

(E) Eligible United States farmers benefited from a federal drought-relief fund late in the third quarter of 1988

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Originally posted by prasannar on 22 Apr 2008, 11:39.
Last edited by broall on 15 Mar 2018, 22:46, edited 2 times in total.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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22 Apr 2008, 12:23
I think A is correct here. It's the only answer that actually explains the increase in sales during a drought period.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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22 Apr 2008, 12:24
1
B.

Net Income = Revenue - cost (labor+material+whatever)

by reducing cost net income would go up.

Drop in the sales is mentioned but for all nation not for this manufacturer in particular.

What is OA?
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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22 Apr 2008, 22:51
A works best - farmers need more irrigation equipment during a drought.

prasannar wrote:
A United States manufacturer of farm equipment reported a 1988 third-quarter net income of \$32 million, compared with \$25.5 million in the third quarter of 1987.
This increase was realized despite a drop in United States retail sales of farm equipment toward the end of the third quarter of 1988 as a result of a drought.

Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer’s net income?

(A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products.
(B) In the third quarter of 1988, the manufacturer paid no wages during a six-week strike, but stocks on hand were adequate to supply dealers.
(C) Sales in the United States of farm equipment made and sold by foreign companies were higher in the third quarter of 1988 than in any previous quarter.
(D) Official dealers of the manufacturer had low supplies of farm equipment during the third quarter of 1988.
(E) Eligible United States farmers benefited from a federal drought-relief fund late in the third quarter of 1988
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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23 Apr 2008, 15:48
Woudn't answer A go too far , for GMAT level assumption ? more over the statement says "despite a drop in United States retail sales of farm equipment" , so is it still safe to assume , there was increase in sales for this particular manufacturer ?

I aggree with B , which would explain why net income increased.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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23 Apr 2008, 16:28
Guys, u am almost certain that this is B
In A, even though the company add a line, it doesnt explain the net income income because the addition is during the drop in sales of farm equipment (1988 end)

prasannar wrote:
A United States manufacturer of farm equipment reported a 1988 third-quarter net income of \$32 million, compared with \$25.5 million in the third quarter of 1987.
This increase was realized despite a drop in United States retail sales of farm equipment toward the end of the third quarter of 1988 as a result of a drought.

Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer’s net income?

(A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products.
(B) In the third quarter of 1988, the manufacturer paid no wages during a six-week strike, but stocks on hand were adequate to supply dealers.
(C) Sales in the United States of farm equipment made and sold by foreign companies were higher in the third quarter of 1988 than in any previous quarter.
(D) Official dealers of the manufacturer had low supplies of farm equipment during the third quarter of 1988.
(E) Eligible United States farmers benefited from a federal drought-relief fund late in the third quarter of 1988
Director
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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23 Apr 2008, 16:30
Originally thought B but I can see A. Just because they had stock on hand doesn't mean they sold the stock. A says there was a demand for stuff to combat drought, and the company could provide it.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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23 Apr 2008, 16:33
I go for 'B'.

B correctly explains the reason for lower sales and higher income.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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25 Apr 2008, 15:09
B.

'this increase was realized despite a drop in US retail sales of farm equipment..'

so this implies that the net income must be from something else besides sales -- cost must be lower.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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25 Apr 2008, 17:11
I pick B over A.

Just because you have irrigation equipment doesn't mean it'll sell. Not paying wages for 6 weeks will increase net income.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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25 Apr 2008, 19:08
OA?

I Go forB, A is wrong, as merely announcing that new product line will be added doesnt mean that it has been added and is generating revenues/profit
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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25 Apr 2008, 20:18
Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer’s net income?

(A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products. -> would indicates future and there is no guarantee that this inclusion will help net income increase
(B) In the third quarter of 1988, the manufacturer paid no wages during a six-week strike, but stocks on hand were adequate to supply dealers-> the wages that were not paid directly become + on the balance sheet thus increasing the income

thus a clear B
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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20 Apr 2013, 07:04
OA is B.

A is wrong as it's just the announcement.

B is correct from the Net income equation. NI=Rev-Cost.

Posted from my mobile device
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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10 Sep 2016, 08:48
Based on description, we know that Net Income (sales - expenses) increased, although sales decreased. The best explanation would describe a decrease in expense or perhaps an increase from some other source of sales.

A - Adding a new line of product doesn't necessarily mean more sales.
B - No wages mean less expenses, however sales were not impacted during the strike because stocks on hand were 'adequate' for customers
C - Out of scope. Sales by other foreign co.'s have nothing to do with this co.
D - Out of scope. Low supplies by dealers has nothing to do with sales of this co. One can assume or argue that the low supplies meant a higher demand for more supplies, but we know that the co. didn't make sales so this assumption wouldn't be true anyway.
E - Out of scope. Farmers getting extra \$\$ has nothing to do with this company. Again, one can assume that because they got extra \$\$, they bought more EQ, but we know this isn't true since sales decreased.

Answer: B - Shows direct impact to the co's sales - expenses formula.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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01 Sep 2018, 01:27
2
Great question with 2 close contenders but as always there can be just 1 answer. The author here assumes that a drop in the retail sales of farm equipment for the whole economy necessarily means a drop in retail sales for the manufacturer in question. That is not necessarily true. The manufacturer might be doing exceptionally good or doing decently good just to stay afloat but the economy on the whole might be bearing the brunt of of a drought. Although this might seem unreasonable let me cite an example: what if this manufacturer produces farm equipments and exports them and does not sell them domestically, then in that case local conditions will not be applicable to the manufacturer in question.
Now let us just walk through the 2 close contenders and pick the right one:
A - this just says that the manufacturer has announced something which in all likelihood will address the drought issue. We have no reason to believe that the manufacturer will indeed walk the talk and if he does then will it really force the people to buy farm equipment.

B - on the other hand says that the manufacturer will withhold the wages of workers for 6 weeks, and this act will directly reduce his costs which will in turn drive his revenue up. Hence this is the one which will fetch us points.
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Re: A United States manufacturer of farm equipment reported a  [#permalink]

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05 Sep 2018, 08:12
A United States manufacturer of farm equipment reported a 1988 third-quarter net income of \$32 million, compared with \$25.5 million in the third quarter of 1987. This increase was realized despite a drop in United States retail sales of farm equipment toward the end of the third quarter of 1988 as a result of a drought.

Income = Revenue - Expenses
The sales decreased towards the end of the third quarter, but income increased

Which of the following, if true, would contribute most to an explanation of the increase in the manufacturer’s net income?

(A) During the third quarter of 1988, the manufacturer announced that it would add irrigation systems to its line of products. - Incorrect - a mere announcement will not lead to an increase in net income

(B) In the third quarter of 1988, the manufacturer paid no wages during a six-week strike, but stocks on hand were adequate to supply dealers. - Correct -- so the expenses reduced, leading to an increase in net income

(C) Sales in the United States of farm equipment made and sold by foreign companies were higher in the third quarter of 1988 than in any previous quarter. - Irrelevant

(D) Official dealers of the manufacturer had low supplies of farm equipment during the third quarter of 1988. - Irrelevant

(E) Eligible United States farmers benefited from a federal drought-relief fund late in the third quarter of 1988 - Irrelevant

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Re: A United States manufacturer of farm equipment reported a &nbs [#permalink] 05 Sep 2018, 08:12
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