In 2003, the Making Hits Record Company spent 40% of its total budget

In 2003, the Making Hits Record Company spent 40% of its total budget on the production of ten albums, 30% of its budget on the marketing of these albums, and the remainder of its budget on overhead costs. In the same year, the Song Factory Record Company spent 20% of its total budget on the production of 10 albums and 60% of its budget on the marketing of these albums. Making Hits sold a total of 800,000 copies of the ten records it produced in 2003, while the Song Factory sold a total of 1,600,000 copies of the ten records it produced in 2003.

Assuming each company met its budget, which of the following conclusions is best supported by the information given above?

(A) The amount of money spent on marketing is directly related to the number of copies sold.
( The deals with percentages so it is a very hard decision to take)
(B) Making Hits spent more money on the production of its albums in 2003 than did the Song Factory.
(40% of its total budget may or may not be greater than 20% of its total budget)
(C) Song Factory’s total revenue from the sale of albums produced in 2003 was higher than that of Making Hits.
( Cannot be said. Number of copies is higher does not indicate the total revenues are greater)
(D) In 2003, Making Hits spent a larger percentage of its budget on overhead costs than did the Song Factory.
( Nothing is told about Song Factory overhead cost)
(E) The Song Factory sold more copies of its 2003 albums than Making Hits did because the Song Factory spent a higher percentage of its budget on the marketing of its albums.( This seems good to me)
Reasonable conclusion to take. Will go for E.

I will go with D on this one.

Even if nothing is mentioned specifically about the overhead costs of SFRC, we get a clear hint that the overhead costs can be max 20% ( in case there are no other costs involved ) or 0% ( in case other costs are involved ). The budget cant overshoot 100%, so D makes sense.

This one is a direct D. Arrange the costs as follows:

Name Of Company-------------Production Costs-----Marketing Costs-----Overhead Costs-----Number of Copies Sold

Making Hits Record Company----40-------------------------30----------------------30----------------------800,000
Song Factory Record Company---20-------------------------60----------------------20----------------------1,600,000

All the costs are expressed in percentage (%).

Thus, according to the overhead costs for each of the companies, we can see that Making Hits spent a larger percentage of its budget on overhead costs than did the Song Factory. That is exactly what D says. Simple arithmetic and data arrangement help us solve this problem quickly too.

How can we assume that the cost grouping of the 2 companies are the same, i.e. that Song Factory Company spent 20% of its budget on overhead costs? It is nowhere said so and one has to assume it. For example, it could easily be that Song F.C spent 10% of its budget on overhead and another 10% on sales agents that the other company didn´t have.

But why are we assuming that the Total budget of Making Hits = Total budget of Song factory?
eg. Total budget of Making Hits = 100 , 30% of 100 --> 30
Total budget of Song factory= 200 , 20% of 200 --> 40
Then how come D is the ans?

Let X and Y be the budgets of MHRC and SFRC respectively.
MHRCo. spent 40% of X ----- production of ten albums
30% of X ----- marketing
20% of X ----- Overhead costs
Sold 800,000 copies

SFRCo. spent 20% of Y ----- production of 10 albums
60% of Y ----- marketing
80% of Y ----- Overhead Costs
Sold 1,600,000 copies

Assuming each company met its budget, which of the following conclusions is best supported by the information given above? Hence, we should not assume anything other than what is mentioned in the stimulus.

(A) The amount of money spent on marketing is directly related to the number of copies sold. We don't know X, Y. So we can't say anything about the amount of money spent.
(B) Making Hits spent more money on the production of its albums in 2003 than did the Song Factory. Same argument here too. We don't know X and Y.
(C) Song Factory’s total revenue from the sale of albums produced in 2003 was higher than that of Making Hits. We don't know what the selling prices were, so we cannot conclude anything from this statement.
(D) In 2003, Making Hits spent a larger percentage of its budget on overhead costs than did the Song Factory. We know that MHRC spent 30% of X on OC and that SFRC spent 20% of Y on OC. True!
(E) The Song Factory sold more copies of its 2003 albums than Making Hits did because the Song Factory
spent a higher percentage of its budget on the marketing of its albums. Again, we don't know X and Y

Hi,
In any case, Making Hits spent 30% of its budget on Overhead costs..

Song Factory's Production + Marketing = 80%
Even if there are more divisions in the company OverHead costs will be less than 30% only..

I hove this clarifies..

Regards
Sahil

This question REALLY bothers me. You don't know if the company had some other expense that it was spending on, so you can't say it all went to overhead. D is a pretty weak OA if you ask me.

I will go for D. You know for sure that Making Hits spent 30% of its total budget on overhead. For Songs Factory, since it's already used 80% on marketing and production, the rest is 20%. So the maximum amount can be spent on overhead is 20% ( it could be less than that if, as you said, the company had some other expense). Then you still can conclude that Making Hits spent larger percentage on overhead.

No mention of overhead cost with the second company?

Although that is true, lakshya14, notice that we can compare percentages of each company's budget. We know from the first sentence of the passage that Making Hits Record Company followed a split of 40/30/30 for production, marketing, and overhead, respectively; we know from the second sentence that the Song Factory Record Company (hereafter SFRC) followed a split of 20/60 for production and marketing, respectively. This leaves only 20 percent for other expenditures within the budget of SFRC, and since 30 > no more than 20, we can conclude that (D) is correct.

Notice that answer choices (A) through (C) are all based on actual figures—i.e. the total amount of money, or the total revenue generated—but we have no information on the actual budgets or revenues of either record company, so we cannot get behind such comparisons.

I hope that helps clarify the matter. Good luck with your studies.

- Andrew

Option D is the winner here.
Other options require assumption on reasons, amount etc.

A) The information does not directly state that the amount of money spent on marketing is directly related to the number of copies sold. While it is mentioned that both companies spent different percentages of their budgets on marketing, it does not provide conclusive evidence to establish a direct relationship between the amount spent on marketing and the number of copies sold. Therefore, this conclusion is not supported by the information given.
(B) The information does not provide direct information about the specific amounts spent on production by either company. It only mentions the percentages of their budgets allocated to production. Without further information about the total budgets of the two companies, we cannot compare the actual amounts spent on production. Therefore, this conclusion is not supported by the information given.
(C) The information does not provide data on the revenue generated by each company from the sale of their albums. It only provides information on the number of copies sold by each company. Without knowing the price of the albums or the revenue generated per copy sold, we cannot determine which company had higher total revenue. Therefore, this conclusion is not supported by the information given.
(D) The information states that Making Hits spent 40% of its budget on the production of albums, 30% on marketing, and the remainder on overhead costs. The Song Factory spent 20% on production, 60% on marketing, and the remainder on overhead costs. Therefore, Making Hits spent a higher percentage of its budget on overhead than Song Factory.
(E) The information states that Making Hits sold a total of 800,000 copies of its albums, while the Song Factory sold a total of 1,600,000 copies. It is mentioned that the Song Factory spent 60% of its budget on marketing, while Making Hits spent 30% on marketing. This suggests that the Song Factory's higher investment in marketing may have contributed to its higher number of album sales. Therefore, the conclusion that "The Song Factory sold more copies of its 2003 albums than Making Hits did because the Song Factory spent a higher percentage of its budget on the marketing of its albums" is not supported by the information given.
Based on the given information, the best-supported conclusion is (D).

Hi Bunuel, bb - FYI, the source is not OG but mgmat. I just took an MGMAT adaptive test today and got this exact question.

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Edited the tag. Thank you very much!