It is currently 12 Dec 2017, 09:22

# Happening Now:

Live Chat with Cornell Johnson Adcoms and Students. Join HERE  |  HBS R1 Decision Chat

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# Events & Promotions

###### Events & Promotions in June
Open Detailed Calendar

# Denoma, a major consumer-electronics maker, had a sizeable

Author Message
Manager
Joined: 02 Aug 2006
Posts: 211

Kudos [?]: 374 [0], given: 0

Location: Taipei

### Show Tags

26 Sep 2006, 08:16
00:00

Difficulty:

(N/A)

Question Stats:

0% (00:00) correct 0% (00:00) wrong based on 1 sessions

### HideShow timer Statistics

Denoma, a major consumer-electronics maker, had a sizeable decline in sales revenue for its most recent fiscal year. This result appears surprising, because electronics retailers report that although their overall sales were considerably lower than in the previous year, their sales revenue from Denoma models actually grew, largely thanks to some innovative and popular models that Denoma introduced.

Which of the following, if true, does most to explain the apparently surprising result?

A. Because of the need to educate the public about its new modelsâ€™ capabilities, Denomaâ€™s advertising spending was higher than normal over the period.
B. For the period at issue, Denomaâ€™s major competitors reported declines in revenue that were, in percentage terms, greater than Denomaâ€™s.
C. A significant proportion of Denomaâ€™s revenue comes from making components for other consumer-electronics manufacturers.
D. Unlike some of its major competitors, Denoma has no lines of business outside consumer electronics to provide revenue when retail sales of consumer electronics are weak.
E. During the period, consumer-electronics retailers sold remaining units of Denomaâ€™s superseded models at prices that were deeply discounted from those modelsâ€™ original prices.

Kudos [?]: 374 [0], given: 0

Senior Manager
Joined: 30 Aug 2006
Posts: 373

Kudos [?]: 75 [0], given: 0

### Show Tags

26 Sep 2006, 08:27
C for me

Kudos [?]: 75 [0], given: 0

Director
Joined: 10 Oct 2005
Posts: 524

Kudos [?]: 70 [0], given: 0

Location: US

### Show Tags

26 Sep 2006, 08:47
yeah going with C...

E is a trap.

Kudos [?]: 70 [0], given: 0

Intern
Joined: 18 Sep 2006
Posts: 43

Kudos [?]: 1 [0], given: 0

### Show Tags

26 Sep 2006, 10:47
Both C and E appear right..Maybe if this were posed in the exam I would also go with C but why not E?

Kudos [?]: 1 [0], given: 0

Director
Joined: 10 Oct 2005
Posts: 524

Kudos [?]: 70 [0], given: 0

Location: US

### Show Tags

26 Sep 2006, 10:54
E --- retailer gave discount but it doesn't say anything manufacturer. Obviously manufacturer may not have got a hit for these discounts.

Kudos [?]: 70 [0], given: 0

Manager
Joined: 15 Aug 2006
Posts: 95

Kudos [?]: 6 [0], given: 0

### Show Tags

26 Sep 2006, 11:04
C.

Argument says sales revenue from *Denoma models* grew, but their overall sales were considerably low. So if most of the revenue comes from sales were non-Denoma models manufacturers, then that explains the possible reason why the overall sales revenue declined.

E doesn't really explain this. Since the original argument says " sales revenue from Denoma models actually grew" whether they discounted at some time of the year doesn't really matter. Because the overall sales revenue did grew for Denoma models.
_________________

http://gmatstuff.blogspot.com

Kudos [?]: 6 [0], given: 0

Intern
Joined: 26 Dec 2005
Posts: 42

Kudos [?]: [0], given: 0

### Show Tags

26 Sep 2006, 11:38
C it is.

The trick was to notice the scope shift from sales revenue for the ntire of Denoma to sales revenue of just the Denoma models

Kudos [?]: [0], given: 0

Manager
Joined: 15 Aug 2006
Posts: 54

Kudos [?]: [0], given: 0

### Show Tags

26 Sep 2006, 11:44
C explains the decline best.

Kudos [?]: [0], given: 0

Senior Manager
Joined: 11 Jul 2006
Posts: 377

Kudos [?]: 17 [0], given: 0

Location: TX

### Show Tags

26 Sep 2006, 17:53
Fell for the Trap , went with E

Don't completely agree with C , coz the stem doesn't mention anything about decline component revenue . Based on the question stem "Which of the following, if true, does most to explain the apparently surprising result? " , we have to assume that component revenues could have declined.
Yeah, but , it does get a lttle close to the truth

Kudos [?]: 17 [0], given: 0

SVP
Joined: 24 Sep 2005
Posts: 1883

Kudos [?]: 394 [0], given: 0

### Show Tags

08 Oct 2006, 01:48
ivymba wrote:
Fell for the Trap , went with E

No, we both didn't fall for the trap
OA is E http://www.gmatclub.com/phpbb/viewtopic ... aker#58687

Kudos [?]: 394 [0], given: 0

VP
Joined: 21 Aug 2006
Posts: 1011

Kudos [?]: 39 [0], given: 0

### Show Tags

08 Oct 2006, 02:12
This is what Wilfred was saying in the thread posted above:

E: Here's the answer. The superseded models were selling well, but at a massive discount from the original price. If this is the case, it's no surprise sales revenus is down for Denoma. Also, since it's remaining models being sold, there's no sales of new models to retailers from Denoma.

I disagree with his conclusion . Reasons:

1. Why will revenue come down, when the models are sold at discounts?

Selling at discounted prices is often a strategy to bolster revenues in the real world.

2. If we assume that the models were selling well before, and because of discounts the sales of these selling models came down, it is contrary to any business logic. Why will some body reduce the price of a model, if it is selling well in the market? If we think that to phase out old models, the manufacturer is giving deep discounts, how often a company will forego its current revenues for future promised, but uncertain revenues?

3. Also going by consumers' nature in electronic goods market, we can say that "Also, since it's remaining models being sold, there's no sales of new models to retailers from Denoma" is not logical. In electronic goods, PC market, models get outdated very fast. Very few consumers will be willing to go for old models, even if they are getting goods at deep discounts. Thats one of the reasons, why lot of manufactures of this type of goods dump them for tax benefits.

Now I would go with C . Components are sold as part of goods often. So I think we can assume that there was decline in components, when there was decline in electronic goods. The case is different in case of "automotive components industry". There the sale of components is very high. And there is a separate industry for components.

Sorry for the long post
_________________

The path is long, but self-surrender makes it short;
the way is difficult, but perfect trust makes it easy.

Last edited by ak_idc on 08 Oct 2006, 03:11, edited 1 time in total.

Kudos [?]: 39 [0], given: 0

SVP
Joined: 24 Sep 2005
Posts: 1883

Kudos [?]: 394 [0], given: 0

### Show Tags

08 Oct 2006, 02:27
It's a great business lesson. Thank you!!;)

This result appears surprising, because electronics retailers report that although their overall sales were considerably lower than in the previous year, their sales revenue from Denoma models actually grew, largely thanks to some innovative and popular models that Denoma introduced.

Yes, the bold part indicates that big sales from retailers should improve sale of Denoma ----> strategies served best for retailers also serve Denoma ---> your biz lesson is correct

I was thinking of C as well but it looks somewhat simple, thus making me doubtful and switch to E

Kudos [?]: 394 [0], given: 0

Director
Joined: 02 Mar 2006
Posts: 577

Kudos [?]: 130 [0], given: 0

Location: France

### Show Tags

08 Oct 2006, 02:45
jerrywu wrote:

C. A significant proportion of Denomaâ€™s revenue comes from making components for other consumer-electronics manufacturers.

E. During the period, consumer-electronics retailers sold remaining units of Denomaâ€™s superseded models at prices that were deeply discounted from those modelsâ€™ original prices.

1st was going for C, then reading the first answers, was convinced C was correct. Then read E's defenders, believed they were wrong. Finally I don't know what the correct answer is!

However, while writing, think C is the answer because it explains the contradiction by considering both sides. 1. Why the overall revenue of Denoma declined and 2. why the revenue of Denoma's model continues to sell well and thus, gives the reason why the revenue of retailers selling denomas modell grew.

E. Just gives one part of the explanation. 2. Why retailers' revenue grew.

Kudos [?]: 130 [0], given: 0

VP
Joined: 21 Mar 2006
Posts: 1124

Kudos [?]: 56 [0], given: 0

Location: Bangalore

### Show Tags

08 Oct 2006, 23:09
laxieqv wrote:
ivymba wrote:
Fell for the Trap , went with E

No, we both didn't fall for the trap
OA is E http://www.gmatclub.com/phpbb/viewtopic ... aker#58687

It can't be E because: The price at which retailers sell does not matter to Denoma. If retailers sold at a discounted price, their revenues would be lower, not the company's.

C on the other hand clearly states why Denoma's revenues would be lower.
1. Premise states that overall sales for retailers were low.
2. Choice C states that a major portion of Denoma's revenues comes from making components for other consumer-electronics manufacturers.

So the other manufacturers themselves would not have bought as much from Denoma as they normally would have leading to the decrease in Denoma's sales revenues.

Kudos [?]: 56 [0], given: 0

Director
Joined: 18 Jul 2006
Posts: 523

Kudos [?]: 71 [0], given: 0

### Show Tags

09 Oct 2006, 01:01
E for me.

Kudos [?]: 71 [0], given: 0

VP
Joined: 25 Jun 2006
Posts: 1161

Kudos [?]: 204 [0], given: 0

### Show Tags

09 Oct 2006, 07:38
E 2.
don't think too much. lol

Kudos [?]: 204 [0], given: 0

Manager
Joined: 31 Aug 2006
Posts: 210

Kudos [?]: 2 [0], given: 0

### Show Tags

09 Oct 2006, 10:12
Good discussion.
jerrywu - What's the OA ?

Kudos [?]: 2 [0], given: 0

SVP
Joined: 03 Jan 2005
Posts: 2227

Kudos [?]: 391 [0], given: 0

### Show Tags

09 Oct 2006, 12:04
Fact: Denoma sales revenue has a sizeable decline.
Fact: Electronics retailers reported increase in sales revenue for Denoma models.

We need to make sure we know what the surprise is, before we can explain. The surprise is that retailers have reported increased revenue for Denoma models while Denoma revenue has decreased.

Quote:
A. Because of the need to educate the public about its new modelsâ€™ capabilities, Denomaâ€™s advertising spending was higher than normal over the period.

Talks about expense. Cannot explain decline of revenue.

Quote:
B. For the period at issue, Denomaâ€™s major competitors reported declines in revenue that were, in percentage terms, greater than Denomaâ€™s.

Competitors are irrelevant here.

Quote:
C. A significant proportion of Denomaâ€™s revenue comes from making components for other consumer-electronics manufacturers.

Very good point. If Denoma's revenue source includes both revenue from direct sales of its own models, as well as the revenue from parts for other models, then the decline from the latter may be greater than the increase of the former, and result in a decrease in total revenue.

Quote:
D. Unlike some of its major competitors, Denoma has no lines of business outside consumer electronics to provide revenue when retail sales of consumer electronics are weak.

The fact that the market is weak does not matter since Denoma models retail revenue has actually increased. This does not explain why Denoma total revenue has decreased.

Quote:
E. During the period, consumer-electronics retailers sold remaining units of Denomaâ€™s superseded models at prices that were deeply discounted from those modelsâ€™ original prices.

There is no way E can be the correct answer. Lower price or not, the retail revenue of Denoma models has increased. It does not offer explanation why total revenue has decreased.

The correct answer is C. If OA is E, then the OA is WRONG.
_________________

Keep on asking, and it will be given you;
keep on seeking, and you will find;
keep on knocking, and it will be opened to you.

Kudos [?]: 391 [0], given: 0

Director
Joined: 23 Jun 2005
Posts: 838

Kudos [?]: 90 [0], given: 1

GMAT 1: 740 Q48 V42

### Show Tags

09 Oct 2006, 13:10
C

Retail sales of Denoma products increased. Sales of products from other manufacturer's declined more sharply than the overall price drop. Components for other manufacturers forms a significant portion of Denoma's sales revenue.
So, loss in revenue from components sale overshadowed gain in revenue from retail sales.

Kudos [?]: 90 [0], given: 1

Manager
Joined: 02 Aug 2006
Posts: 211

Kudos [?]: 374 [0], given: 0

Location: Taipei

### Show Tags

09 Oct 2006, 13:29
mukeshnathani wrote:
Good discussion.
jerrywu - What's the OA ?

OA is C

Kudos [?]: 374 [0], given: 0

09 Oct 2006, 13:29

Go to page    1   2    Next  [ 22 posts ]

Display posts from previous: Sort by

# Denoma, a major consumer-electronics maker, had a sizeable

Moderators: GMATNinjaTwo, GMATNinja

 Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.