Denoma, a major consumer-electronics maker, had a sizeable decline in

Question

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 models’ capabilities, Denoma’s advertising spending was higher than normal over the period.

(B) For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s.

(C) A significant proportion of Denoma’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(E) During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices.

ChrisLele · Accepted Answer

So let’s take apart the argument.

Denoma (D.), a consumer-electronic maker, has seen a decrease in sales in the past year. However, D. provides products to retailers, which saw an increase in the sale of D.’s products. How to account for this?

Well, maybe D.’s profits are not solely determined by the number of its products users are able to sell. Maybe, D. creates parts for products that do not have the D. label on them.

For example, let’s say retailers sold D.s new line of home stereos. Units flew off the shelf. However, D. makes a number of parts for many televisions, which do not have the D. label (let’s say for Sony, Panasonic and the rest) If most of D.’s profits are determined by the sale of televisions, then if televisions had a bad year, D.’s profits will decline. This is the case, even with retailers selling plenty of D’s stereos.

The only answer choice that captures this logic is (C).

Let me know that if that helped!

Bull78 · Answer

I was caught between C and E.

I chose E, because I considered the following assumptions:

1. Retailers made sizeble purchases of Denoma's products last year.
2. Only one product was sold full price by retailers the previous year.
3. As Retailers wanted to rid themselves of the non selling stock, they offered a deep discount.
4. Retailers sold all of their Denoma's Stock, and therefore made more Revenues of Denoma's products than previous year.

Nevertheless, after reading the stimulus again, I realized that E can not be, as the sales that retailers report grew largely thanks to some innovative and popular models that Denoma Introduced.

C it is... I guess the next time I get caught between 2 options I will look back again to the stimulus to find some scope narrowing wording.

Keep walking!!

d3thknell · Answer

the argument talks about an consumer electronics maker Denoma,which had a sizeable decline in sales revenue for that particular year. this result comes as a surprise to everyone because according to retailers of electronic goods( the people who sell electronics), although there was a decline in overall sales of electronic goods but the goods manufactured by denoma had increased sales revenue compared to last year. this was largely due to innovation and popularity of newly introduced models of denoma.

so what we have from the argument is basically
-increase in sales revenue from the models manufactured by denoma.
-overall decline in sales of electronic goods.
-overall decline in sales revenue for Denoma.
how can one explain this effect?
if we can assume denoma is also into manufacturing of parts for other electronic goods manufacturers and the revenue from these parts is is much more significant compared to revenue from denoma models, then the above three effects can be explained.

piyatiwari · Answer

C is right.

Given argument tells that, in spite of increase in sell of Denoma products, the overall revenue decreased. So we should look for answer choice which gives answer of this surprising result.

A. Because of the need to educate the public about its new models’ capabilities, Denoma’s advertising spending was higher than normal over the period.  - this could reason the increased sale but not the decreased revenue, hence wrong.

B. For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s.  - out of scope, wrong

C. A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.  - correct. the significant potrion of revenue is not related to sale of Denoma brand goods.

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.  - neutral choice.

E. During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices. -  - out of scope, wrong[/color

Paramita11 · Answer

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 models’ capabilities, Denoma’s advertising spending was higher than normal over the period.
 advertising spends is irrelevant  
B. For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s.
 retailers have not reported a positive growth for Denoma as comapred to competitors but a growth in Denoma models as compared to past year Denoma sales . 
C. A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.
 Only plausible option for increment in Denoma's sales . 
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.
 does not support statement that Denoma sales increased  
E. During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices
 The retailers report sales of innovative models which have been recently introduced

thevenus · Answer

Ofcourse C

Let's keep it short and simple, the argument states that:
-Overall revenue of company has declined BUT 
-The retail sales has done good business
It means that, the overall decremented revenue is not directly related to the retail sales ONLY.Something else is responsible for the overall sales/revenue decline.

Only C states that a substantial revenue is dependent on something else too ( "A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.")

pikolo2510 · Answer

Hey  nightblade354

Need your help. I am confused between option A and C

I discarded option C for the below reason and went ahead with option A. Let me know yourthoughts

Option C : - A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.

Components are sold by denoma to other manufacturers. It means, denoma already received the money for the same. If the other manufacturers didnt sell them then this situation shouldnt be affecting denoma. We will have to assume that denoma will receive the money for the components they made only if the other manufacturers sold their respective products. Hence I ruled out C

nightblade354 · Answer

pikolo2510 , let's break the argument down.

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 models’ capabilities, Denoma’s advertising spending was higher than normal over the period. --  What does the last portion mean when it says "higher than normal"? Does this mean by a penny, or by $50 billion? We cannot make this assumption and thus doesn't help our argument. 
 
(C) A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers. --  Ah, so if their profits are deriven from something else, this would resolve the paradox.
 
Does this help?

blitzkriegxX · Answer

Hello nightblade354 !

I had a small doubt! We are mainly concerned with "Sales Revenue". Do we really need to bother about an option that talks about advertising? Does it matter what happens to the revenue? Wether they spend it on advertising or something else? I agree with your above explanation, but was curious if we could eliminate the option in any other way! Posted from my mobile device

nightblade354 · Answer

Hi  blitzkriegxX ,

We cannot eliminate off of the premise you just mentioned. A failed advertising campaign could be expensive and worthless; this would resolve the paradox (revenue down, but sales up).

payalkhndlwl · Answer

Why is A wrong? since D's advertising expenses were higher, its net profit was less and hence revenue was less. Doesnt it resolve the conflict?

GMATNinja · Answer

We're asked which choice does the most to explain the apparently surprising result (or as you put it, the conflict). But  what is the conflict  we're trying to explain?

Well, the result is that Denoma had a sizeable decline in  sales revenue  during its most recent fiscal year. We are  not  looking at net profit, which is typically calculated as gross income (including sales revenue, but potentially also including other sources of income) minus the cost of goods and services.

The conflict here is that Denoma had a sizeable decline in sales revenue over the fiscal year — but in the same year, retailers saw an increase in sales revenue from Denoma models.

Choice (A) states that Denoma's  advertising spend  was higher than normal over the period in question. But that doesn't explain the conflict that we're concerned with:

Again, this question is not about net profit. 
  Knowing that there was higher advertising spend doesn't give us any new information on why Denoma's overall sales revenue declined.

As  nightblade354  and others have explained, choice (C) more directly addresses the conflict. If a significant proportion of Denoma's revenue comes from selling components to  other manufacturers , then a decline in these sales to manufacturers could result in a decline in overall sales revenue — even at the same time as sales revenue from  retailers  grows.

This information does more to resolve the conflict than any other answer choice.

I hope this helps!

altairahmad · Answer

Hi,

Compared to (E), doesn't (C) require us to make an extra assumption that the revenue of the other manufacturers declined as well ?

So what if Denoma's revenue comes from other manufacturers ? We don't know what happened to their revenue. That should be largely out of scope.

On the other hand, (E) states that older models (since stimulus clearly states that increase in sales was from newer models) were sold at a significantly lower price as compared to their original cost. The stimulus even states that 'largely' the number of units sold were newer. So this is a much smaller leap in assumption that enough number of older units were sold to have a sizeable impact on the overall revenue. (C) on the other hand asks a big leap in assumption that that the combined revenue of other sources decreased. While we can make that assumption, what's stopping us from assuming the required assumption for (E) i.e. enough older units were sold to make a considerable impact on revenue.

(C) would have made more sense, had the stimulus hinted that overall market saw decreasing revenues.

(C) isn't a no-brainer asnwer, or is it ? What it appears to refer to can easily be termed out-of-scope, no ?

Will appreciate your input.

GMATNinja · Answer

We're not looking for a "no-brainer answer." We are selecting the answer choice that  does most to explain the apparently surprising result.

This doesn't require us to confirm specific assumptions, as you've been trying to do in your analysis. We only need to identify the choice that does the most to make this surprising result logically believable.

The prompt tells us Denoma  had a sizeable decline in sales revenue for its most recent fiscal year. . This is quite a broad statement by definition, so it covers anything that Denoma has sold to the "overall market," as you put it — including the sales of components to the consumer-electronics market. I'm not sure if this is what you meant when comparing the scope of (C) to the scope of the prompt, but in any case, it would be a mistake to assume that this decline in sales revenue only applies to specific product verticals.

Taking one more look at choice (E):

You're right that this is a very concrete story. But is it the story we care about?

Remember, we want the choice that does the most to raise logically valid possibilities for  a sizable decline in sales revenue .

Putting (C) and (E) head to head, here's what we've got:

(C) confirms that there's an entirely different and significant portion of Denoma's sales portfolio (comopnents), which isn't even covered by the prompt. This raises the logical possibility that a decline in component sales accounts for the decline in overall sales. Sure, we don't have proof that this happened, but the scale of sales decline suggested in this choice matches the scale of the paradox we're trying to explain. That makes the paradox more logically believable. 
  (E) confirms that some portion of back stock of outdated models were sold at a discount alongside their innovative and popular models. This only tells us that... retailers sold off some old models at a cheaper price in addition to Denoma's great new models. Could this alone can explain why Denoma saw a sizable decline in overall sales revenue? Maaaaybe, but compared to the possible swing in revenue suggested in (C), this is weak sauce. It's a narrow data point covering what seems like a small proportion of sales — which does very little to make Denoma's overall decline in sales revenue more logically believable.

I hope this helps!

KarishmaB · Answer

This is a good question which means you need to read it closely to get to the answer but the answer will be unambiguous.

- Denoma, an electronics manufacturer, had a sizeable decline in sales revenue
- Electronics retailers report that although their overall sales were lower, their sales revenue from Denoma models actually grew because of new good models of Denoma.

How do we explain this paradox?
The revenue for Denoma decreased but for retailers it increased from Denoma products.

(A) Because of the need to educate the public about its new models’ capabilities, Denoma’s advertising spending was higher than normal over the period.

We are only talking about revenue, not profit so cost is irrelevant.

(B) For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s.

We know that Denoma's competitors most likely reported declines (because retailers reported declines on other manufacturer products). Doesn't help tell us why Denoma reported declines.

(C) A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers.

So Denoma's revenue depends on two things (at least) - its own products and making components for others. Its own product sold well, but others' products did not and hence that revenue would have decreased for Denoma. So overall, it saw a decrease in revenue though retailers sold Denoma products well. 
Explains the paradox.

(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.

Irrelevant. Denoma's electronics sales was not weak. We want to explain why the retailers saw increase in revenue from Denoma electronics products but Denoma saw an overall decrease in revenue.

(E) During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices.

Retailers, though they sold some units are deep discounts, still saw an increase in revenue from Denoma. Why did Denoma not see an increase in revenue too? This option does not explain it.

Answer (C)

zoezhuyan · Answer

dear experts,  DavidTutorexamPAL

GMATNinja ,  GMATNinjaTwo ,  VeritasKarishma ,  AnthonyRitz ,  CJAnish ,  MartyTargetTestPrep ,  AndrewN , VeritasPrepBrian 
 , fiftyoneverbal

I spent few hours for this question, but I still struggle with C and E, for me both can explain the discrepancy.

from the argument, the discrepancy is 
1) Denoma's overall sales revenue decreased
2) retailers said the sales revenue from Denoma models are grew.

at first when I read the argument, I thought 1) and 2) are not discrepancy. because 1) and 2) are totally coexist. increase in sales revenue from one model does not necessary mean overall sales revenue increase, it is entirely possible that overall revenue decrease. so I read many times to figure out the discrepancy.

then, I thought C and E can explain, C is what I guess above. why I thought E can explain is that E implies the discount price of remaining units of Denoma's superseded models is greater than the grew revenue from some innovative and popular models.

please help.

thanks in advance.

AndrewN · Answer

Wow,  zoezhuyan ,  hours  on a single question—now that is dedication. The way I see it, (E) represents more of a could-be-true answer. There is no way to reasonably qualify what  deeply discounted  means, nor do we know just how many units of these  superseded models  were sold by consumer-electronics retailers. If we are willing to create numbers to justify the answer, then we can do so, but that is taking the conclusion for granted.

Meanwhile, (C) tells us that not just  some , but  a significant proportion  of the revenue that Denoma earns is from providing hardware for other manufacturers. Since the passage tells us that  electronics retailers report that... their overall sales were considerably lower than in the previous year , we can appreciate how such an industry-wide sales slump might affect the bottom line of Denoma. Sure, we have to assume that Denoma was not paid off ahead of time, that its revenue was somehow tied to the sale of the electronics of other brands, but the overall connection is stronger, less tenuous, than the one we outlined above with (E).

One final point that I feel the need to mention is to never lose sight of the question itself. This one is not a must-be-true, but allows for a little wiggle room:

All we are looking for, then, is the  most  reasonable explanation among the five provided. (E) requires too much speculation to work, and (C) uses one of the most common over-qualifying words that GMAC™ likes to put in to justify a correct answer:  significant(ly) .

I hope that helps. Thank you for thinking to ask.

- Andrew

Smitc007 · Answer

Hi  GMATNinja  ,

Thanks for the the explanation above.

I have ignored Choice E for a different reason , Kindly please let me know whether my thought process is correct

In the problem statement ,it is mentioned that a major consumer-electronics   maker   had a sizeable decline in sales revenue. However, In option E we are talking about consumer-electronics   retailers   . Now even if Retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted price still loss in the revenue will be for retailers not the makers.

for example :- I am the manufacturer ,and i sold the some components to different retail outlet at $100 with a marked price of $200. if Retailer sold it for $50 , the loss incurred will be for retailer . Hence ,the option E doesn't explain why there is decline in sales revenue of the maker.

GMATNinja · Answer

It sounds like you might be confusing a decrease in  revenue  with a decrease in  profit . You could certainly increase revenue by slashing prices:

Let's say that you bought 500 Denoma Model Z's last year for $100 a piece and didn't buy any other Denoma models. Your retail price was $200, but you only sold 50 of them. In that case, your total revenue from the Denoma Model Z's (last year) was $200*50 = $10,000. 
 Since last year's sales of Model Z's were so crappy, you decide to drop the price from $200 to $50. At that price, you manage to sell the remaining 450 you had leftover from last year. So your total revenue from the sale of those 450 Model Z's (this year) is $50*450 = $22,500. 
 Compared to last year, your revenue from Denoma Model Z's increased even though your profits tanked (you  made  $5k on the 50 you sold last year and  lost  over $20k on the 450 you sold this year).

Regardless, the prompt explicitly states that "sales revenue from Denoma models actually grew,    largely   thanks to some innovative and popular models that Denoma introduced ." So even if sales of older models did in fact contribute to an increase in revenue, sales of the newer models MUST have made a much more significant contribution to the increase.

That means that Denoma MUST have been doing a pretty good job selling phones to retailers. So why did Denoma have a sizeable  decline  in sales revenue?

Can we dream up a scenario that makes the numbers work? Perhaps. But, as explained in  this post , (C) offers a much simpler explanation.

I hope that helps!

Denoma, a major consumer-electronics maker, had a sizeable decline in

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Denoma, a major consumer-electronics maker, had a sizeable decline in

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