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

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

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12 Nov 2008, 06:20
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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?

(A)Does the company have new and profitable products available with which to replace the flagship product?
(B)Will the rest of Company X's management team agree with the CFO's recommendation?
(C)Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
(D)Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
(E)What percentage of Company X's revenues is represented by sales of the flagship product in question?
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12 Nov 2008, 07:03
D.

(D)Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?

This will help to increase the profit margin for the flagship product. Customers are ready to pay current price, if cost is reduced profit margin will be increased without having to do any other investment.
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12 Nov 2008, 07:08
to my mind...C and E also run very close....
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12 Nov 2008, 15:54
prasun84 wrote:
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?(IRRELEVANT - doesn't matter what size it is. No impact on per unit cost or revenue.)
(B)Will the rest of Company X's management team agree with the CFO's recommendation? (IRRELEVANT)
(C)Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price?
(D)Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product?
(E)What percentage of Company X's revenues is represented by sales of the flagship product in question? (IRRELEVANT - doesn't matter what size it is. No impact on per unit cost or revenue.)

It's between C and D for me. Honestly, they both look possible. I went with increasing Revenue because D suggests keeping the same product, hence the status quo.

what's OA??
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12 Nov 2008, 17:07
me thinks D too for a slightly different reason than what BudhaBelly states above.

Assumption - Addl features would cost money to implement..If that be true, then the company would have to pour in some money first before the increase in profits can be seen. So there could be a period wherein the profits decline further before rising back up. But our CEO, like every other one out there, is impatient enough so he'll axe the Product line if he doesn't see an increase, right away. Hence C is incorrect

The only way to see immediate rise in profits is to tighten costs..If the CFO can answer that question, then his recommendation to the CEO becomes valid against facts.
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12 Nov 2008, 18:01
prasun84 wrote:
to my mind...C and E also run very close....

Is the OA D?
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12 Nov 2008, 18:21
here is what i think ::

we need to evaluate whether the company shud take the "new approach", which is "switch to new products which have greater profit margin"

For this we need a condition which will tell us Yes OR No to the approach

(A)Does the company have new and profitable products available with which to replace the flagship product? ( We are not looking for replacement )
(B)Will the rest of Company X's management team agree with the CFO's recommendation? (out of scope)
(C)Are there additional features which could be added to the product and for which consumers might be willing to pay a higher price? (this is too far of a vision ; we already know that consumers dnt want to pay higher price and thats the whole reason why the CFO did teh analysis)
(D)Is there a way to alter the manufacturing or distribution processes in order to reduce the cost to produce the flagship product? (if we can increase the profit of the product with the consumer paying the same price then there is no need frop teh approch )
(E)What percentage of Company X's revenues is represented by sales of the flagship product in question? (this will not lead to any decision because if the % is very high say 78% then definitely continuing it will lead to greater losses OR of the % is low say 12% then we can easily stop this and switch)
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12 Nov 2008, 21:18
OA is D.
thanx for the posts.
i held on to the mention of "flagship" product and slightly overlooked the "profit margins" as mentioned in the final conclusion.
Re: CR: Company X   [#permalink] 12 Nov 2008, 21:18
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