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23 Mar 2020, 05:28
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Difficulty:
55%
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Question Stats:
62% (02:02) correct
38%
(02:13)
wrong
based on 609
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Magnavox, a company that makes gaming consoles and games, has seen, through the years, declining profits for its flagship product, GameBox 1. The CFO of Magnavox investigated the issue and determined that an increase in chip costs had raised the cost of producing the console but consumers who were surveyed had reported that they weren‖t willing to pay more than the lower price that GameBox 1 was selling at the time of its launch. As a result, the CFO recommended that the company stop producing this product because the CEO wanted to sell only products whose profit margins were increasing.
The answer to which of the following questions would be most useful in evaluating whether the CFO’s decision to divest the company of its flagship product is warranted?
The answer to which of the following questions would be most useful in evaluating whether the CFO’s decision to divest the company of its flagship product is warranted?
- (A)Does the company have new and profitable products available with which to replace the flagship product?
(B)Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
(C) How will Magnavox's brand name be impacted if they stopped producing GameBox 1?
(D) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
(E) What percentage of Magnavox's revenues are represented by the sales of the flagship product in question?
28 Mar 2020, 08:29
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The decision to divest the company from its flagship product is due to the fact that CEO only ''wanted to sell only products whose profit margins were increasing.''
Keeping in mind the profit margin,let's analyze the given choices:
(A)Does the company have new and profitable products available with which to replace the flagship product? No mention of new products in the question stem.Also CEOs argument is about keeping the profitable products and not adding the new ones. A is out
(B)Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?Well if this is true than the CFO's decision will be totally unjustified. B is the winner
(C) How will Magnavox's brand name be impacted if they stopped producing GameBox 1?Similar to A. Unrelated to the question in picture. C is out too.
(D) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?This one was tempting to me. But additional features would also add to the cost and thus there are chances for profitability to remain constant. D is out
(E) What percentage of Magnavox's revenues are represented by the sales of the flagship product in question?No relation with profitability of particular product. E is out too
Keeping in mind the profit margin,let's analyze the given choices:
(A)Does the company have new and profitable products available with which to replace the flagship product? No mention of new products in the question stem.Also CEOs argument is about keeping the profitable products and not adding the new ones. A is out
(B)Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?Well if this is true than the CFO's decision will be totally unjustified. B is the winner
(C) How will Magnavox's brand name be impacted if they stopped producing GameBox 1?Similar to A. Unrelated to the question in picture. C is out too.
(D) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?This one was tempting to me. But additional features would also add to the cost and thus there are chances for profitability to remain constant. D is out
(E) What percentage of Magnavox's revenues are represented by the sales of the flagship product in question?No relation with profitability of particular product. E is out too
Bunuel
28 Mar 2020, 19:42
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The CEO only wanted products which could fetch increasing amount of profit margin. If not, they have to be discarded.
Hence CFO asked to discontinue the GB1 because it was not fetching increased margins.
The question asked is whether the decision to divest from the GB1 is warranted.
A. It doesn’t answer the question.
B. By doing so, if the profits margin can be increased, then the CFO’s mandate to stop production can be halted.
C. This doesn’t answer the profit margin issue.
D. Additional features may cost additionally. Higher price does not mean higher profit margin.
E. It could be a big percentage of the revenue, but the CEO’s mandate was to increase the profit margin. This doesn’t answer it.
Hence B.
Posted from my mobile device
Hence CFO asked to discontinue the GB1 because it was not fetching increased margins.
The question asked is whether the decision to divest from the GB1 is warranted.
A. It doesn’t answer the question.
B. By doing so, if the profits margin can be increased, then the CFO’s mandate to stop production can be halted.
C. This doesn’t answer the profit margin issue.
D. Additional features may cost additionally. Higher price does not mean higher profit margin.
E. It could be a big percentage of the revenue, but the CEO’s mandate was to increase the profit margin. This doesn’t answer it.
Hence B.
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