Answer (D): While this isn't the clearest explanation, it's the most satisfactory. It can be conjectured that the rising incomes of the majority of the customer base allowed for the company to sell more of (or raise prices on) its products - thereby increasing the top line -> extending to the bottom line despite increases in expenses.

(A) This would make sense if we could conclude that the cost of procuring cows fell in the current year (and therefore total expenditures fell). However, there is no evidence to suggest that this is so.
(B) While this may be true, it wouldn't negate the fact that increasing salary expenses would in theory lower net income.
(C) This implies that the company could have planned for the rising expenditures, and adjusted accordingly. However, its too far a stretch to conclude that because the salary increases were budgeted for, it did not raise overall expenses (thereby lowering net income).
(E) The implication is that most of these employees earn minimum wage - no new information provided.

My solution requires a knowledge of some basic supply/demand theory, which may make it incorrect, as the GMAT requires that you have no previous knowledge of the market or economics.

I chose D but need a better reasoning to rule out C.

Why cant we assume that the salary increases were budgeted? and the mandated increase from govt didn't really increase the overall expenses?

here is the official explanation from Kaplan

Official Explanation

Here are the facts
Minimum wage was increased by 10% , increasing operational costs
Company had higher profits.

consider C: The fact that it "considered" a wage increase has no bearing. Even if you make the assumption that (which you shouldn't) this increase in wage was budgeted - how would you explain the fact that the company made "record sales". Option C just doesn't cut it!

Option D though suggests that the increase in wage essentially made the company's core customers richer (giving them more money to spend) and therefore possibly explains this scenario.
Hope that helped

Ajeeth Peo
Verbal Trainer
CrackVerbal
_________________

One of the worst questions I have ever seen.
There is logic of course.
But it has to be an overthinking to solve this question. I think good Oficial GMAT questions "do not like to do it"

But, a raise in the minimum wage of those customers does not imply necessarly a raise in thir purchases !!!

How do we know that the 4000 employees would actually buy those goods? There is no evidence to conclude that. I think this is a poor quality question.

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