Joe, as your business partner in Joe's Eats, I advise against making

Question

https://gmatclub.com/forum/download/file.php?mode=view&id=63932Memo From Steven Joe, as your business partner in Joe's Eats, I advise against making the change you suggested. Attached is a table showing some of the ingredients we use. Currently, we order these ingredients from a wholesale food delivery company, but you have proposed we start purchasing them fresh from local farms instead. As you can see in the table, obtaining these ingredients from local farms would cost more per ounce, and so I believe that making this change would reduce our profits considerably, and maybe even cause us to lose money and go out of business.https://gmatclub.com/forum/download/file.php?mode=view&id=63933 The above table lists selected menu items at Joe's Eats, the current cost of ingredients for those menu items, the price at which the items are sold to customers, and the net profit made per menu item. 2.jpg 1.jpg

Sajjad1994 · Accepted Answer

Official Explanation

1. Consider each of the following statements. Is the statement supported by the information provided?

The ingredient that costs the least when purchased fresh has the highest percentage increase in cost per ounce when switching from purchasing wholesale to purchasing fresh.

Find the ingredient with the lowest Cost (Fresh): Oregano.

Next, use the data in Tab #1 to calculate the cost per ounce for each item. For example, for Cheese, divide the Cost (Wholesale) by the Size (ounces) to determine a cost per ounce of Cheese of 20 cents when purchased wholesale. In the same way, calculate the cost per ounce of Cheese of 30 cents when purchased fresh. Next, use the percent change formula to calculate the percentage increase in cost per ounce:

\frac{Difference}{Original} = \frac{30-20}{20} = 50 %

Repeat the same calculations for each of the ingredients to find the percentage increase for Oregano (200%), Bell Pepper (25%), Lettuce (approximately 67%), Onion (100%), and Celery (10%).

Therefore, Oregano has the highest percentage increase in cost per ounce of all the ingredients, and the statement is supported.

The answer is Yes.

The menu item with the lowest sales price has the highest ratio of net profit to cost of ingredients.

Use the table in Tab #2 to find the menu item with the lowest Sales Price, which is the Taco.

Next, calculate the ratio of Net Profit to Cost of Ingredients for the Taco, which is 3 to 1. Then, calculate the same amount for the other Menu Items, looking for one that is greater. When you reach Pasta, the result is 3.66 to 1, which is higher than 3 to 1, and so this statement is not supported.

The answer is No.

The menu item with the highest net profit has the highest markup (sales price divided by cost of ingredients).

Use the table in Tab #2 to find the menu item with the highest Net Profit, which is Pizza. Calculate the markup on Pizza by dividing the Sales Price of $10.00 by the Cost of Ingredients of $2.75, for a markup of about 3.63 times the cost.

Next, calculate the markup for the other items, looking for one with a higher markup than Pizza. When you reach Pasta, the markup is 4.66 times the Cost of Ingredients, which is greater than 3.63, and so this statement is not supported.

The answer is No.

2. What is the probability that obtaining an ingredient fresh from a local farm will increase the cost per ounce for that ingredient by more than 75%?

The question asks for the probability that obtaining an ingredient fresh from a local farm will increase the cost per ounce for that ingredient by more than 75%. In order to determine the answer, you need to calculate the percentage increase in cost per ounce for each of the ingredients.

First, you must use the data in Tab #1 to find the cost per ounce for each item. For example, for Cheese, divide the Cost (Wholesale) by the Size (ounces) to determine a cost per ounce of Cheese of 20 cents when purchased wholesale. In the same way, calculate the cost per ounce of Cheese of 30 cents when purchased fresh. Next, use the percent change formula to calculate the percentage increase in cost per ounce:

\frac{Difference}{Original} = \frac{30-20}{20} = 50 %

Repeat the same calculations for each of the ingredients to find the percentage increase for Oregano (200%), Bell Pepper (25%), Lettuce (approximately 67%), Onion (100%), and Celery (10%).

Once you have those amounts, calculate the probability that the ingredient has a percentage increase over 75%: 2 ingredients (Oregano and Onion) do, out of 6 total ingredients, which simplifies to 1 out of 3.

Answer: B

rvgmat12 · Answer

1.

Yes - Oregano goes from 0.4 to 1.2 (200% increase)
No - It is Pasta (5.5/1.5 = 3.67 approx) which has the highest ratio
No - It is Pasta (7/1.5 = 4.67 approx) which has the highest ratio

2. B

For Oregano and Onion, the increase in cost is more than 75%

2/6 = 1/3

yashikaaggarwal · Answer

Well, you will find the explanation below in the pictures.

Posted from my mobile device

ktzsikka · Answer

Q1a) The ingredient that costs the least when purchased fresh has the highest percentage increase in cost per ounce when switching from purchasing wholesale to purchasing fresh.
A1a) We observe that the least cost (Fresh) is the least for Oregano and the % change (WS to Fresh) is also highest for Oregano = 200%.
So, answer is YES.
For info, Cost (WS) per ounce, in same sequence is = 0.2, 0.05, 0.08, 0.03, 0.06, 0.1;
Cost (Fresh) per ounce, in same sequence is = 0.3, 0.15, 0.1, 0.05, 0.12, 0.11;
% Change (WS to Fresh), in same sequence is = 50%, 200%, 25%, 66.67%, 100%, 10%.

Q1b) The menu item with the lowest sales price has the highest ratio of net profit to cost of ingredients.
A1b) Clearly, the lowest SP on the menu is of Taco = 4, while the highest ratio of NP/CP is of Pasta = 3.67%.
So, answer is NO.
For info, ratio of NP/CP, in same sequence is = 2.63, 2.2, 3.67, 2.56, 2.43

Q1c) The menu item with the highest net profit has the highest markup (sales price divided by cost of ingredients).
A1c) Menu item with highest NP is Pizza = 7.25, while highest MP is of Pasta = 4.67
For info, MPs (SP/CP), in same sequence is = 3.63, 3.2, 4.67, 3.56, 3.43
So, answer is NO.

Q2) What is the probability that obtaining an ingredient fresh from a local farm will increase the cost per ounce for that ingredient by more than 75%?
A2) As mentioned earlier in explanation of (1a), % Change (WS to Fresh), in same sequence is = 50%, 200%, 25%, 66.67%, 100%, 10%.
We observe that only for 2 (viz. Oregano & Onion) out of total 6 ingredients - %change is more than 75%.
Hence answer is 2/6=1/3 => Option b

Summarising,
1a) Yes
1b) No
1c) No
and
2 b

wannabeMBA10 · Answer

No, no, no
B

Posted from my mobile device

Nirmesh83 · Answer

1.yes
 no
 no
2.A 1/6

Sajjad1994 · Answer

Hello Everyone!

Following are the OAs of this question.

Question #1: Yes, No and No
Question #2: B

Competition mode is off now. I will post OE later within few hours.

Sajjad1994 · Answer

Good explanation  ktzsikka

Just for your information: According to the GMAC even if one segment of an IR question is wrong the complete question will be considered wrong. For example here is question #1, if you got one point wrong out of three points your question will be marked as wrong and will carry no weightage.

Thank you

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