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# Company X receives most of its revenues from the sale of

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Senior Manager
Joined: 19 Nov 2007
Posts: 460
Company X receives most of its revenues from the sale of [#permalink]

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21 Feb 2010, 16:07
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Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?

1]Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.
2]Company profits will not decline below their current level.
3]Higher gasoline prices will not reduce the company’s revenues from other business lines.
4]The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.
5]The supply of gasoline is likely to decline over the next quarter.
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Senior Manager
Joined: 21 Jul 2009
Posts: 364
Schools: LBS, INSEAD, IMD, ISB - Anything with just 1 yr program.

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21 Feb 2010, 16:16
vscid wrote:
Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?

1]Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.
2]Company profits will not decline below their current level.
3]Higher gasoline prices will not reduce the company’s revenues from other business lines.
4]The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.
5]The supply of gasoline is likely to decline over the next quarter.

Company X buys ready-made gasoline from refineries at say Price A per gallon and sells in it's gas-stations at say Price B per gallon. Evidently, B > A. Now B is speculated to increase by 10% and X thinks that it'll increase it's profits i.e; B - A by 10% as well.

Straight-forward assumption that A will not rise accordingly. So D is the answer. Option A is a classic shell-game trick. Despite B increasing by 10%, it is not mandatory for consumers to keep buying from X only. This can be an assumption as well, but that scope is not under discussion in the passage. What the consumers of X are thinking is not of concern. All other options can just be eliminated blindly, keeping a 2:3 tie with only options A and D as the contenders.
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Director
Joined: 27 Jun 2008
Posts: 542
WE 1: Investment Banking - 6yrs

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22 Feb 2010, 00:13
vscid wrote:
Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?

1]Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.
2]Company profits will not decline below their current level.
3]Higher gasoline prices will not reduce the company’s revenues from other business lines.
4]The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.
5]The supply of gasoline is likely to decline over the next quarter.

B - out of scope; does not fit in with gasoline
C - out of scope; other business lines
D - cost of purchase is going to remain constant, but it does not make it plausible that the sale is going to increase. Out.
E - out of scope; supply does not fit in

So, A.
Manager
Joined: 29 Oct 2009
Posts: 200
Concentration: General Management, Sustainability
WE: Consulting (Computer Software)

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23 Feb 2010, 16:35
1]Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.
>> This assumption leads to 10% increase in sales.

Only A is the correct assumtion.
Senior Manager
Joined: 19 Nov 2007
Posts: 460

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23 Feb 2010, 16:38
OA is
[Reveal] Spoiler:
A.

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BSchool Forum Moderator
Joined: 02 Oct 2009
Posts: 592
GMAT 1: 530 Q47 V17
GMAT 2: 710 Q50 V36

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29 Mar 2010, 03:38
Its A
Manager
Joined: 07 Jan 2010
Posts: 240

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06 Apr 2010, 06:48
A is better than D.

Even if the cost price is higher, the sale could still reach the expected level. It is proportional--higher cost price to higher sale price. Although It would happen only if someone is still buying.

Good one.
Re: gasoline   [#permalink] 06 Apr 2010, 06:48
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