Excess inventory, a massive problem for many businesses, has several

Question

Excess inventory, a massive problem for many businesses, has several causes, some of which are unavoidable. Overstocks may accumulate through production overruns or errors. Certain styles and colors prove unpopular. With some products—computers and software, toys, and books—last year’s models are difficult to move even at huge discounts. Occasionally the competition introduces a better product. But in many cases the public’s buying tastes simply change, leaving a manufacturer or distributor with thousands (or millions) of items that the fickle public no longer wants.

One common way to dispose of this merchandise is to sell it to a liquidator, who buys as cheaply as possible and then resells the merchandise through catalogs, discount stores, and other outlets. However, liquidators may pay less for the merchandise than it cost to make it. Another way to dispose of excess inventory is to dump it. The corporation takes a straight cost write-off on its taxes and hauls the merchandise to a landfill. Although it is hard to believe, there is a sort of convoluted logic to this approach. It is perfectly legal, requires little time or preparation on the company’s part, and solves the problem quickly. The drawback is the remote possibility of getting caught by the news media. Dumping perfectly useful products can turn into a public relations nightmare. Children living in poverty are freezing and XYZ Company has just sent 500 new snow-suits to the local dump.  Parents of young children are barely getting by and QPS Company dumps 1,000 cases of disposable diapers because they have slight imperfections .

The managers of these companies are not deliberately wasteful; they  are simply unaware  of all their alternatives. In 1976 the Internal Revenue Service provided a tangible incentive for businesses to contribute their products to charity. The new tax law allowed corporations to deduct the cost of the product donated plus half the difference between cost and fair market selling price, with the provision that deductions cannot exceed twice cost. Thus, the federal government sanctions—indeed, encourages—an above-cost federal tax deduction for companies that donate inventory to charity.   1 
 C 
1. The author mentions each of the following as a cause of excess inventory EXCEPT

(A) production of too much merchandise
(B) inaccurate forecasting of buyers’ preferences
(C) unrealistic pricing policies
(D) products’ rapid obsolescence
(E) availability of a better product

2 
 B 
2. The passage suggests that which of the following is a kind of product that a liquidator who sells to discount stores would be unlikely to wish to acquire?

(A) Furniture
(B) Computers
(C) Kitchen equipment
(D) Baby-care products
(E) Children’s clothing

3 
 B 
3. The passage provides information that supports which of the following statements?

(A) Excess inventory results most often from insufficient market analysis by the manufacturer.
(B) Products with slight manufacturing defects may contribute to excess inventory.
(C) Few manufacturers have taken advantage of the changes in the federal tax laws.
(D) Manufacturers who dump their excess inventory are often caught and exposed by the news media.
(E) Most products available in discount stores have come from manufacturers’ excess-inventory stock.

4 
 E 
4. The author cites the examples in lines 25-29  Parents of young children are barely getting by and QPS Company dumps 1,000 cases of disposable diapers because they have slight imperfections .] most probably in order to illustrate

(A) the fiscal irresponsibility of dumping as a policy for dealing with excess inventory
(B) the waste-management problems that dumping new products creates
(C) the advantages to the manufacturer of dumping as a policy
(D) alternatives to dumping explored by different companies
(E) how the news media could portray dumping to the detriment of the manufacturer’s reputation

5 
 A 
5. By asserting that manufacturers “ are simply unaware ” (line 31), the author suggests which of the following?

(A) Manufacturers might donate excess inventory to charity rather than dump it if they knew about the provision in the federal tax code.
(B) The federal government has failed to provide sufficient encouragement to manufacturers to make use of advantageous tax policies.
(C) Manufacturers who choose to dump excess inventory are not aware of the possible effects on their reputation of media coverage of such dumping.
(D) The manufacturers of products disposed of by dumping are unaware of the needs of those people who would find the products useful.
(E) The manufacturers who dump their excess inventory are not familiar with the employment of liquidators to dispose of overstock.

6 
 A 
6. The information in the passage suggests that which of the following, if true, would make donating excess inventory to charity less attractive to manufacturers than dumping?

(A) The costs of getting the inventory to the charitable destination are greater than the above-cost tax deduction.
(B) The news media give manufacturers’ charitable contributions the same amount of coverage that they give dumping.
(C) No straight-cost tax benefit can be claimed for items that are dumped.
(D) The fair-market value of an item in excess inventory is 1.5 times its cost.
(E) Items end up as excess inventory because of a change in the public’s preferences.

7 
 C 
7. Information in the passage suggests that one reason manufacturers might take advantage of the tax provision mentioned in the last paragraph is that

(A) there are many kinds of products that cannot be legally dumped in a landfill
(B) liquidators often refuse to handle products with slight imperfections
(C) the law allows a deduction in excess of the cost of manufacturing the product
(D) media coverage of contributions of excess-inventory products to charity is widespread and favorable
(E) no tax deduction is available for products dumped or sold to a liquidator

GMATNinja · Accepted Answer

The key to this question actually lies in the first paragraph: "With some products— computers  and software, toys, and books—last year’s models are difficult to move even at huge discounts." Remember, the liquidators are buying the merchandise as cheaply as possible, and we can infer that the liquidators are going to sell the merchandise at deeply discounted prices. But if some products, such as computers, are  difficult  to sell even at huge discounts, then the liquidators would have trouble selling those items, even if they are offered at deeply discounted prices.

Thus, it is likely that liquidators would avoid such products. (B) is the best answer.

GMATNinja · Answer

Nothing in the passage suggests that the managers were  unaware  of the needs of those people. Remember, by dumping the products in a landfill, the corporation is able to take a "straight cost write-off on its taxes" (i.e. deduct the cost of the items from its taxes). If we are dealing with thousands or even millions of items, that would amount to huge tax savings. So if the company has to chose between giving the products away (with no tax benefit) or dumping them in a landfill, they would likely chose the latter to take advantage of the tax savings.

The passage also implies that companies are likely aware of the public relations risk of dumping perfectly useful products in landfills. The examples at the end of the second paragraph show how such practices could make the corporations look bad. But, again, if doing so is going to result in huge tax savings, they might reluctantly proceed with landfill dumping, even if they are aware that there are people in need (putting the company's finances over those people's needs and over the risk of looking bad if the media catches them in the act).

To summarize, even if the managers are aware of the people's needs, they still might decide to dump the items, not because they want to be wasteful but because they want to save money. However, the passage suggests that there are other alternatives of which the corporations are not aware. For example, managers might not realize that they can enjoy an even GREATER tax savings by donating the products to charity. This was not the case before the law of 1976, so some managers simply might not be aware of the option.

The primary incentive for landfill dumping was to take advantage of the tax savings. But if managers knew that they could save even more in taxes by donating excess inventory to charity, surely they would do so. Thus, choice (A) is better than choice (D).

I hope that helps!

OptimusPrimea1 · Answer

6. The information in the passage suggests that which of 
 the following, if true, would make donating excess inv 
 entory to charity less attractive to manufacturers than 
 dumping?
 (A) The costs of getting the inventory to the charitable 
 destination are greater than the above-cost tax 
 deduction.
 (B) The news media give manufacturers’ charitable
 contributions the same amount of coverage that they 
 give dumping.
 (C) No straight-cost tax benefit can be claimed for items 
 that are dumped.
 (D) The fair-market value of an item in excess inventory 
 is 1.5 times its cost.
 (E) Items end up as excess inventory because of a 
 change in the public’s preferences.

7. Information in the passage suggests that one reason
 manufacturers might take advantage of the tax provision
 mentioned in the last paragraph is that
 (A) there are many kinds of products that cannot be 
 legally dumped in a landfill
 (B) liquidators often refuse to handle products with 
 slight imperfections
 (C) the law allows a deduction in excess of the cost of 
 manufacturing the product
 (D) media coverage of contributions of excess-inventory 
 products to charity is widespread and favorable
 (E) no tax deduction is available for products dumped or 
 sold to a liquidator

Two more questions on the same..

iamdp · Answer

1. The author mentions each of the following as a cause of excess inventory EXCEPT
(A) production of ]too much merchandise > mentioned 
(B) inaccurate forecasting of buyers’ preferences > mentioned 
 (C) unrealistic pricing policies.  > not mentioned 
(D) products’ rapid obsolescence > mentioned 
(E) availability of a better product > mentioned

2. The passage suggests that which of the following is a kind of product that a liquidator who sells to discount stores would be unlikely to wish to acquire?
(A) Furniture
 (B) Computers  > 1st paragraph 
(C) Kitchen equipment
(D) Baby-care products
(E) Children’s clothing

3. The passage provides information that supports which of the following statements?
(A) Excess inventory results  most often  from insufficient market analysis by the manufacturer.
 (B) Products with slight manufacturing defects may contribute to excess inventory . > stated in the 1st paragraph
(C) Few manufacturers have taken advantage of the changes in the federal tax laws. > may be but we don't know. 
(D) Manufacturers who dump their excess inventory  are often  caught and exposed by the news media.
(E)  Most  products available in discount stores have come from manufacturers’ excess-inventory stock.

4. The author cites the examples in lines 25-29 most probably in order to illustrate
(A) the fiscal irresponsibility of dumping as a policy for dealing with excess inventory
(B) the waste-management problems that dumping new products creates
(C) the advantages to the manufacturer of dumping as a policy
(D) alternatives to dumping explored by different companies
 (E) how the news media could portray dumping to the detriment of the manufacturer’s reputation  Clearly mentioned that how the news media distorts the picture

5. By asserting that manufacturers “are simply unaware” (line 31), the author suggests which of the following?
(A) Manufacturers might donate excess inventory to charity rather than dump it if they knew about the provision in the federal tax code.
(B) The federal government  has failed to provide  sufficient encouragement to manufacturers to make use of advantageous tax policies.
(C) Manufacturers who choose to dump excess inventory  are not aware  of the possible effects on their reputation of media coverage of such dumping. > they are 
(D) The manufacturers of products disposed of by dumping  are unaware of the needs  of those people who would find the products useful.
(E) The manufacturers who dump their excess inventory are not familiar with the employment of liquidators to dispose of overstock. > out of the view

6. The information in the passage suggests that which of the following, if true, would make donating excess inventory to charity less attractive to manufacturers than dumping?
 (A) The costs of getting the inventory to the charitable destination are greater than the above-cost tax deduction . > directly mentioned 
(B) The news media give manufacturers’ charitable contributions the same amount of coverage that they give dumping.
(C) No straight-cost tax benefit can be claimed for items that are dumped.
(D) The fair-market value of an item in excess inventory is 5 times its cost.
(E) Items end up as excess inventory because of a change in the public’s preferences.

7. Information in the passage suggests that one reason manufacturers might take advantage of the tax provision mentioned in the last paragraph is that
(A) there are many kinds of products that cannot be legally dumped in a landfill
(B) liquidators often refuse to handle products with slight imperfections
 (C) the law allows a deduction in excess of the cost of manufacturing the product  > directly stated 
(D) media coverage of contributions of excess-inventory products to charity is widespread and favorable
(E) no tax deduction is available for products dumped or sold to a liquidator

HimG15 · Answer

Answer to this lies in the first para - "With some products - computers and software, toys and books - last year's models are difficult to move even at huge discounts"
Thus, it is unlikely that a liquidator will acquire computers.
Good question!

Erjan_S · Answer

I find it a bit confusing - in fact, the author states that "The managers of these companies are not deliberately wasteful; they are simply unaware of all their alternatives" and then goes in detail about tax incentives as for me it clearly implied that C is a valid choice! I agree that A is a valid choice as well, but really these two A and C are both supported in the passage

RMD007 · Answer

Hello  GMATNinja ,

Can you please explain question 2?

adkikani · Answer

GMATNinja ,  GMATNinjaTwo

I selected D instead of OA:B for Q#3.
Did I make mistake of recognizing often / rare?

RMD007 · Answer

I think I can try this.

Please refer to below part of the passage:

In this part, author says that there is a possibility that manufacturer may get caught by the news media and this can turn into a public relations nightmare. While this statement indicates possibility, option D goes far to say that these Manufacturers are OFTEN caught and this is not mentioned in the passage.

Hope this helps.

goforgmat · Answer

If you carefully read the first paragraph, we can see that the one of the factors mentioned is the changing consumer preference.this doesn't imply that the market analysis was insufficient. It was simple because the consumer was fickle minded.

As for C, we don't know anything about companies that do use this provision. it simply talks about the companies that dump. It could be that none of the companies are using that provision in which case C is wrong. Or it could be that few companies are already using that provision which makes C deducible. Hence we can't properly infer C

Skywalker18 · Answer

Hi adkikani, 3. The passage provides information that supports which of the following statements? (A) Excess inventory results most often from insufficient market analysis by the manufacturer. (B) Products with slight manufacturing defects may contribute to excess inventory. - Parents of young children are barely getting by and QPS Company dumps 1,000 cases of disposable diapers because they have slight imperfections. (C) Few manufacturers have taken advantage of the changes in the federal tax laws. (D) Manufacturers who dump their excess inventory are often caught and exposed by the news media.-- the word often makes it incorrect ; The drawback is the remote possibility of getting caught by the news media - the word remote suggests that probability of getting caught is less (E) Most products available in discount stores have come from manufacturers’ excess-inventory stock. Hope this helps!!

kinshuk97gupta · Answer

I seriously can't find the answer so can you please mention in which line is it stated?

Posted from my mobile device

dcummins · Answer

Passage map:
Overall the passage describes a business issue - excess inventory - and the pros and cons of strategies dealing with that issue

p1: state and explain issue
p2: example of how to fix and risks associated
p3: state alternative

Q1

The issue with Q1 is that a lot of the answers are synonyms or deduced from the causes stated in p1.
A is incorrect as we are told "production overruns"
B is incorrect as we are told "publics buying states simply change", so we can infer that HAD the manufacturer accurately forecasted the preferences, then this wouldn't be an issue
C is correct - it is nowhere stated
D is incorrect because this is inferred from the general causes in P1
E is incorrect because this is explicitly stated

Q2  
Answer described in sentence "with some products- computers. - difficult to move" 
Thus (B)

Q3  
Admittedly, this one I narrowed down to B and C, but selected C.
C is incorrect because we are only told that the managers of companies that DUMP are unaware of the tax provision, so we cannot infer any reasonable value on the overall number of manufacturers who may be unaware of the provision.

B is correct because we are told in P1 that "overstocks may accumulate through production overruns or errors". Therefore it is actually stated that slight defects contribute to the problem.

Q6  
The appeal of donating, as evidenced in the last para, is the potential tax write-off.
We are then asked WHAT WOULD MAKE DONATING TO CHARITIES LESS APPEALING?
A is the answer - if the cost of giving something to a charity exceeds the tax benefit received then why would a company prefer donating to other methods?

C - some people getting tripped on C - The key is to notice that C says "Dumped" - this is irrelevant to donating.

Q7  
Keep this in mind: a DETERRENCE from an alternative strategy is not the APPEAL OF ANOTHER STRATEGY
With this in mind, it is quite apparent that (A), (C) and (E) are incorrect

D is not supported by the argument

C is supported - we are told the laws allow corporations to "deduct the cost of the product plus half the difference.."

azhrhasan · Answer

a good question indeed. I was all puzzled and decided to call the odd one out. but didn't work out

CEdward · Answer

I will admit that I am not a fan of some of the answers because there is evidence to the contrary for some questions. Please kudos if you agree and chime in.

1. The author mentions each of the following as a cause of excess inventory EXCEPT

(A) production of too much merchandise X
(B) inaccurate forecasting of buyers’ preferences X
(C) unrealistic pricing policies Correct
(D) products’ rapid obsolescence X
(E) availability of a better product X

2. The passage suggests that which of the following is a kind of product that a liquidator who sells to discount stores would be unlikely to wish to acquire?

(A) Furniture X
(B) Computers X

I find the thinking behind this is fallacious. With respect to  GMATNinja , the claim is that discounter retailers would avoid taking on computers because the manufacturers are already struggling to liquidate even at large discounts. We have to assume however that these computers would be sold at an even deeper discount by the purchasers. In reality, would you not pick up a computer that costs next to nothing? Take the extreme example, say, a computer that costs a dollar. Without question you best believe that those computers would be sold.

(C) Kitchen equipment X

(D) Baby-care products Correct
I bounced back and forth between D and E and couldn't make up my mind. I am not sure these other choices are entirely convincing, but disagree about B.

(E) Children’s clothing X

3. The passage provides information that supports which of the following statements?

(A) Excess inventory results most often from insufficient market analysis by the manufacturer. Correct

It's baffling that A is not the right answer. The entire first paragraph cites such lack of analysis as the reason why excess inventory results. This one bothers me the most. IN FACT, question 1 explicitly indicates that this is one of the reasons why there is excess inventory: "inaccurate forecasting of buyers’ preferences" <---This is code for poor market analysis.

(B) Products with slight manufacturing defects may contribute to excess inventory. 
(C) Few manufacturers have taken advantage of the changes in the federal tax laws.
(D) Manufacturers who dump their excess inventory are often caught and exposed by the news media.
(E) Most products available in discount stores have come from manufacturers’ excess-inventory stock.

4. The author cites the examples in lines 25-29   most probably in order to illustrate

(A) the fiscal irresponsibility of dumping as a policy for dealing with excess inventory
(B) the waste-management problems that dumping new products creates
(C) the advantages to the manufacturer of dumping as a policy
(D) alternatives to dumping explored by different companies
(E) how the news media could portray dumping to the detriment of the manufacturer’s reputation Correct

5. By asserting that manufacturers “are simply unaware” (line 31), the author suggests which of the following?

(A) Manufacturers might donate excess inventory to charity rather than dump it if they knew about the provision in the federal tax code. 
(B) The federal government has failed to provide sufficient encouragement to manufacturers to make use of advantageous tax policies.

Correct. This is a walking tight rope between A and B. I think I can see why A is correct and the better choice.
 
(C) Manufacturers who choose to dump excess inventory are not aware of the possible effects on their reputation of media coverage of such dumping.
(D) The manufacturers of products disposed of by dumping are unaware of the needs of those people who would find the products useful.
(E) The manufacturers who dump their excess inventory are not familiar with the employment of liquidators to dispose of overstock.

6. The information in the passage suggests that which of the following, if true, would make donating excess inventory to charity less attractive to manufacturers than dumping?

(A) The costs of getting the inventory to the charitable destination are greater than the above-cost tax deduction. Correct
(B) The news media give manufacturers’ charitable contributions the same amount of coverage that they give dumping.
(C) No straight-cost tax benefit can be claimed for items that are dumped.
(D) The fair-market value of an item in excess inventory is 1.5 times its cost.
(E) Items end up as excess inventory because of a change in the public’s preferences.

7. Information in the passage suggests that one reason manufacturers might take advantage of the tax provision mentioned in the last paragraph is that

(A) there are many kinds of products that cannot be legally dumped in a landfill
(B) liquidators often refuse to handle products with slight imperfections
(C) the law allows a deduction in excess of the cost of manufacturing the product Correct
(D) media coverage of contributions of excess-inventory products to charity is widespread and favorable
(E) no tax deduction is available for products dumped or sold to a liquidator

mSKR · Answer

For your Q2: 
Re-read the question: "The passage suggests ". 
Your thinking: In reality, would you not pick up a computer txx

We need to stick to scope what is given in passage. The question is not a general question but a specific to some text given.

For your Q3: public’s buying tastes simply change doesn't mean that market analysis was inaccurate. The trend may change and it is not necessary to predict it accurately in advance. Who expected that covid19 would change the world the way we work. Even none of the market reports mentioned such feasibility inspite of their accurate analysis based on data available to them at that time.

priyanshii26 · Answer

Can someone please let me know the level of each question ?

Sajjad1994 · Answer

Here is my rough idea.

Question #1: 500
Question #2: 700
Question #3: 650
Question #4: 550
Question #5: 550
Question #6: 550
Question #7: 600

Overall: 600

VerbalBot · Answer

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Excess inventory, a massive problem for many businesses, has several

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Excess inventory, a massive problem for many businesses, has several

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