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# Profits for one of Company X's flagship products have been

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Senior Manager
Joined: 24 Mar 2011
Posts: 447
Location: Texas
Profits for one of Company X's flagship products have been [#permalink]

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01 Aug 2011, 20:37
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Profits for one of Company X's flagship products have been declining slowly for several years. The CFO investigated and determined that inflation has raised the cost of producing the product but consumers who were surveyed reported that they weren't willing to pay more than the current price. As a result, the CFO recommended that the company stop producing this product because the CEO only wants products whose profit margins are 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?
1) Does the company have new and profitable products available with which to replace the flagship product?
2) Will the rest of Company X's management team agree with the CFO's recommendation?
3) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
4) Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
5) What percentage of Company X's revenues is represented by sales of the flagship product in question?
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01 Aug 2011, 20:49
1
KUDOS
D for me.

If the distribution and manufacturing costs can be reduced, the profit can be increased. C on the other hand does not address whether additional features require additional cost to add.

Crick
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01 Aug 2011, 23:37
+1 for D
Senior Manager
Joined: 09 Feb 2011
Posts: 279
Concentration: General Management, Social Entrepreneurship
Schools: HBS '14 (A)
GMAT 1: 770 Q50 V47

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01 Aug 2011, 23:51
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KUDOS
1)Does the company have new and profitable products available with which to replace the flagship product? Will that matter? CEO ONLY wants to produce products whose profit margins are increasing - if there is no such product, he wants to produce none. There is no minimum number of products that they HAVE to produce - and as such the question of replacement doesnt rise
2)Will the rest of Company X's management team agree with the CFO's recommendation? : No where does the argument mention whether the management team has a say or not, or who has the larger say if there is a conflict. answer to this question - yes or no- will not help us decide
3)Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price? - This seems like a contender, but nowhere does this question answer how much will the cost of production increase if the additional features are added. what is the cost of production would increase far more than what the additional revenue from increased proce would be, and as such the profitability falls even further??
4) Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product? : Before closing down production, the CEO should look into this - while the prices are fixed, if the cost of production can be reduced, the product might become profitable to produce.
5)What percentage of Company X's revenues is represented by sales of the flagship product in question? Irrelevant - product might be 100 % or 1 % of the sales - It is the profitability and not the revenue share which is making the CEO decide whetehr to produce a product or not.
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Joined: 12 Mar 2011
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03 Aug 2011, 01:32
1) Does the company have new and profitable products available with which to replace the flagship product?
2) Will the rest of Company X's management team agree with the CFO's recommendation?
3) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
4) Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
5) What percentage of Company X's revenues is represented by sales of the flagship product in question?

IMO C

In D - alteration and manufacturing process are discussed to reduce the cost ...But as mentioned in the passage "CEO only wants products whose profit margins are increasing." ... thus to get increasing profit margins, one must keep on upgrading the product utility....which can be possible via "additional features " as mentioned in option C ....

WHats OA ?
Intern
Joined: 28 May 2011
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03 Aug 2011, 05:40
D for me too
Manager
Joined: 27 Dec 2007
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03 Aug 2011, 12:42
+1 D
Manager
Joined: 26 Sep 2010
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GMAT 1: 680 Q49 V34
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07 Aug 2011, 03:37
+1 for D
Senior Manager
Joined: 08 Nov 2010
Posts: 408

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07 Aug 2011, 07:31
tapaspatil wrote:
1) Does the company have new and profitable products available with which to replace the flagship product?
2) Will the rest of Company X's management team agree with the CFO's recommendation?
3) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
4) Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
5) What percentage of Company X's revenues is represented by sales of the flagship product in question?

IMO C

In D - alteration and manufacturing process are discussed to reduce the cost ...But as mentioned in the passage "CEO only wants products whose profit margins are increasing." ... thus to get increasing profit margins, one must keep on upgrading the product utility....which can be possible via "additional features " as mentioned in option C ....

WHats OA ?

My thought process was very similar to yours. I choose C - its the only option to have an increasing margin. waiting for OA. thanks.
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07 Aug 2011, 23:22
In my humble opinion, it is E.

I just think that A & B does not make sense much. C & D actually follow a similar line of reasoning: C deals with the matter of adding value to the products, thereby enhancing the attractiveness the products themselves with a view to boosting the demand; D deals with the supply side, e.g. what can be done in order to reduce the production cost. To me, C & D do count, but I would need to know first how much does the particular products' sales revenue account for the total sales revenue of the firm? if it contributes a tiny percentage, the answer is clear. But if it does contribute a relatively large percentage, say 20%, then the answer should be made in further consideration of such a question as D.
Manager
Joined: 28 Jul 2011
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08 Aug 2011, 08:24
I got E, what is the OA.

I am not convinced with ANS D, it cannot be said for sure that altering the manufacturing or distribution process will increase the profit (word = inflation).

But for ans choice E
We can for sure say that if the profit margin for this product x is less then all other production, then as the CEO decicison, if product is not performing then discard it.
Intern
Joined: 27 Jul 2011
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08 Aug 2011, 22:32
i got D.
whats the OA?
Senior Manager
Joined: 03 Mar 2010
Posts: 440
Schools: Simon '16 (M)

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09 Aug 2011, 00:55
agdimple333 wrote:
Profits for one of Company X's flagship products have been declining slowly for several years. The CFO investigated and determined that inflation has raised the cost of producing the product but consumers who were surveyed reported that they weren't willing to pay more than the current price. As a result, the CFO recommended that the company stop producing this product because the CEO only wants products whose profit margins are 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?
1) Does the company have new and profitable products available with which to replace the flagship product?
2) Will the rest of Company X's management team agree with the CFO's recommendation?
3) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
4) Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
5) What percentage of Company X's revenues is represented by sales of the flagship product in question?

I am confused between A and D. Why not A?
A) Does the company have new and profitable products available with which to replace the flagship product?
If the company doesn't have profitable products available with which they can replace their flagship product then doesn't it make more sense to continue with less profitable product instead of shutting it down completely?
_________________

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Manager
Joined: 09 Sep 2010
Posts: 51
Location: India
Concentration: Operations, General Management
GMAT 1: 640 Q47 V34
GMAT 2: 690 Q47 V38
GPA: 3.4
WE: Information Technology (Aerospace and Defense)

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09 Aug 2011, 03:04
What's the OA?
Manager
Joined: 03 Feb 2010
Posts: 181
Concentration: Strategy
Schools: Northwestern (Kellogg) - Class of 2014
WE: Marketing (Computer Hardware)

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09 Aug 2011, 08:49
144144 wrote:
tapaspatil wrote:
1) Does the company have new and profitable products available with which to replace the flagship product?
2) Will the rest of Company X's management team agree with the CFO's recommendation?
3) Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
4) Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
5) What percentage of Company X's revenues is represented by sales of the flagship product in question?

IMO C

In D - alteration and manufacturing process are discussed to reduce the cost ...But as mentioned in the passage "CEO only wants products whose profit margins are increasing." ... thus to get increasing profit margins, one must keep on upgrading the product utility....which can be possible via "additional features " as mentioned in option C ....

WHats OA ?

My thought process was very similar to yours. I choose C - its the only option to have an increasing margin. waiting for OA. thanks.

As said above, introducing more features only brings up more questions, like how much do those features cost? Because if the cost goes up, then profitability goes down. We need to find a answer here that can help evaluate his decision quickly.

It is D because if costs for the product decreases, then profitability for the current product increases. Revenue - Cost = Profit
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Joined: 01 Oct 2013
Posts: 10171
Re: Profits for one of Company X's flagship products have been [#permalink]

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22 Nov 2015, 08:57
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: Profits for one of Company X's flagship products have been   [#permalink] 22 Nov 2015, 08:57
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