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19 Oct 2023, 23:07
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GMATNinja MartyTargetTestPrep Could you please throw some light on this as I have the same doubt as Dhwani has?
Dhwanii
26 Oct 2023, 14:34
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Understanding the argument -
Denoma's sales revenue declined in the most recent FY.
The Retailer's report shows that while their overall sales were considerably lower, Denoma's model's sales revenue actually grew.
Facts respected means that we need a second line of reasoning with some new information to resolve the paradox.
1. Sales of Denoma aren't just dependent on the Retail sales. Had that been the case, their overall sales would have increased. But we know that their sales had a sizable decline. It means another major source of revenue isn't doing well. One more clue is that Retailers' overall sales were considerably lower; it is possible that the overall industry hasn't done well. So, Denoma's sales decline is likely linked to the industry sales. This is what option C explains. And it's common in the consumer electronics industry to have manufacturers supply to multiple other popular Brands. Those brands put their logo on it, with some work on top, and sell.
Option Elimination -
(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 talks about the cost. We aren't concerned here about profits. We are talking about revenues, which has nothing to do with the costs. Out of scope.
(B) For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s. - This explains that the industry is doing badly but doesn't explain the paradox, which is why retailers reported sales revenue from Denoma models actually grew. Distortion.
(C) A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers. - ok.
(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. - This worsens the paradox. Opposite of what we are looking for.
(E) During the period, consumer-electronics retailers sold remaining units of Denoma’s superseded models at prices that were deeply discounted from those models’ original prices. - At best, it worsens the paradox. If they sell at deep discounts, that would explain lower revenues, not the high sales revenues of Denoma's models.
Denoma's sales revenue declined in the most recent FY.
The Retailer's report shows that while their overall sales were considerably lower, Denoma's model's sales revenue actually grew.
Facts respected means that we need a second line of reasoning with some new information to resolve the paradox.
1. Sales of Denoma aren't just dependent on the Retail sales. Had that been the case, their overall sales would have increased. But we know that their sales had a sizable decline. It means another major source of revenue isn't doing well. One more clue is that Retailers' overall sales were considerably lower; it is possible that the overall industry hasn't done well. So, Denoma's sales decline is likely linked to the industry sales. This is what option C explains. And it's common in the consumer electronics industry to have manufacturers supply to multiple other popular Brands. Those brands put their logo on it, with some work on top, and sell.
Option Elimination -
(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 talks about the cost. We aren't concerned here about profits. We are talking about revenues, which has nothing to do with the costs. Out of scope.
(B) For the period at issue, Denoma’s major competitors reported declines in revenue that were, in percentage terms, greater than Denoma’s. - This explains that the industry is doing badly but doesn't explain the paradox, which is why retailers reported sales revenue from Denoma models actually grew. Distortion.
(C) A significant proportion of Denoma’s revenue comes from making components for other consumer-electronics manufacturers. - ok.
(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. - This worsens the paradox. Opposite of what we are looking for.
(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. - At best, it worsens the paradox. If they sell at deep discounts, that would explain lower revenues, not the high sales revenues of Denoma's models.
31 Dec 2023, 18:56
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bv8562
Starting with (C): we have no idea about the timeline of sales between Denoma and the other consumer-electronics manufacturers. We can't assume that the other manufacturers bought tons of parts from Denoma at the beginning of the year -- it's just as likely that they buy those parts throughout the year. This would mean that Denoma's revenues are tied to the revenues of these other companies. If those revenues went down this year, so did Denoma's.
Remember that we're looking for the answer choice that "does most to explain the surprising result." (C) does just that. It provides a potential reason why Denoma had a sizeable decline in sales revenue despite the fact that retailers are selling tons of Denoma products. So even if there are some edge cases in which the info in (C) would not explain the surprising result, it still offers the "most" toward a reasonable explanation.
To discuss (E), I'll steal from our previous post: (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 that helps!
