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# The Maxilux car company's design for its new luxury model,

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The Maxilux car company's design for its new luxury model, [#permalink]

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07 Aug 2012, 14:43
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The Maxilux car company's design for its new luxury model, the Max 100, included a special design for the tires that was intended to complement the model's image. The winning bid for supplying these tires was submitted by Rubco. Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company.

Which of the following, if true, most strongly justifies the claim made by Rubco's executives?

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.

(D) When people who have purchased a carefully designed luxury automobile need to replace a worn part of it, they almost invariably replace it with a part of exactly the same make and type.

(E) When Maxilux awarded the tire contract to Rubco, the only criterion on which Rubco's bid was clearly ahead of its competitors' bids was price.
[Reveal] Spoiler: OA
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Re: The Maxilux car company's design for its new luxury [#permalink]

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07 Aug 2012, 15:04
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In real world , (D) would not work.Changing of worn out tire of luxury car require time (say a year;unlike sports cars which gets worn out in few minutes)and hence earning an upfront profit is not easy.Also , it is mentioned that just for the looks people will buy the matching company's tire compulsorily , again, it means that the sale of the stepney is a slow process.
(B) can be a good deal upfront, so that the tire manufacturer will be able to adjust profit margin through the tires for other models of car.
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Re: The Maxilux car company's design for its new luxury [#permalink]

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10 Aug 2012, 07:53
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analysts said that there will be no profit in this bid . .co says there will be profit due to this bid. the profit can come from some other sale than the sale to company

hence D ,

A was a strong contender but its not mentioned that spare tyre was part of bid or not (if not part of bid then can have different price than the bid price)
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Re: The Maxilux car company's design for its new luxury [#permalink]

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10 Aug 2012, 09:05
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(D). Profit = Revenue - Cost. The premises show that revenue from Maxilux will equal cost. So to strengthen the argument, we need additional revenue from elsewhere. (B) is close because it generates additional revenue, but that revenue is also from Maxilux so the revenue will most likely not exceed the cost here either. (D) is the only answer choice that adds the kind of outside revenue stream we want.
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Re: The Maxilux car company's design for its new luxury [#permalink]

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12 Aug 2012, 23:05
rjacobsMGMAT wrote:
(D). Profit = Revenue - Cost. The premises show that revenue from Maxilux will equal cost. So to strengthen the argument, we need additional revenue from elsewhere. (B) is close because it generates additional revenue, but that revenue is also from Maxilux so the revenue will most likely not exceed the cost here either. (D) is the only answer choice that adds the kind of outside revenue stream we want.

@rjacobsMGMAT , great explanation, I marked C thinking that Analysts are not aware of the distance related costs and Co executives are, and that these co executives are sure of saving some cost in transportation. However it would be assuming too much I think. Please shed some light
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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betterscore wrote:
The Maxilux car company's design for its new luxury model, the Max 100, included a special design for the tires that was intended to complement the model's image. The winning bid for supplying these tires was submitted by Rubco. Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company.

Which of the following, if true, most strongly justifies the claim made by Rubco's executives?

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.

(D) When people who have purchased a carefully designed luxury automobile need to replace a worn part of it, they almost invariably replace it with a part of exactly the same make and type.

(E) When Maxilux awarded the tire contract to Rubco, the only criterion on which Rubco's bid was clearly ahead of its competitors' bids was price.

Ok Let us put this down as points

1.Rubco won the bid.
2.Analysts conclude Rubco wont make any profit.
3.BUT, Rubco claims that it actually makes profit.

How is it possible?? There has to be a way out....

Option A -Out of scope. We need to show that Rubco will make profit in some way.
Option B- is close but it is not addressing the issue. We need to address how this bid will generate profits. Here it talks about the other products etc.
Option C- WE cannot conclusively say that there is profit if the plants are closer
Option D- This is a constraint on the customer. So there will be extra revenue generated and hence profits for Rubco.
Option E - Out of scope.
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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13 Mar 2013, 22:58
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The Maxilux car company's design for its new luxury model, the Max 100, included a special design for the tires that was intended to complement the model's image. The winning bid for supplying these tires was submitted by Rubco. Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company.

Which of the following, if true, most strongly justifies the claim made by Rubco's executives?

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.
Talks about Make & model. States nothing about price, cost or profit

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.
Note: Other models---> although new info but OFS . No information about the cost/ price/profitability of the deal

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.
so what? It will only help in logistics & operations

(D) When people who have purchased a carefully designed luxury automobile need to replace a worn part of it, they almost invariably replace it with a part of exactly the same make and type.Correct. Strengthening in GMAT style i.e. just a slight push to strengthen the claim. It just hints that sales of wheels may increase due to replacement. why not B? - Note the scope here : same model --> same design ---> same tires. But in B it states about other models

(E) When Maxilux awarded the tire contract to Rubco, the only criterion on which Rubco's bid was clearly ahead of its competitors' bids was price.
This only tells about the criterion
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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21 Oct 2013, 08:17
I found this question interesting because I disagree with the OA explanations:

How can you claim that analysts would factor in that two sites are close to each other but not consider that winning a contract will strenghen the postion for residual sales of spare parts. I would argue that any analyst should be aware of such a general claim and therefore would price that into his or her considerations. With that logic I would tilt towards the less wrong b - although amigious I can still argue that those future sales are probably priced differently into the analysts expectations.

Anyone share that though?
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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18 Jan 2014, 05:28
solve58 wrote:
I found this question interesting because I disagree with the OA explanations:

How can you claim that analysts would factor in that two sites are close to each other but not consider that winning a contract will strenghen the postion for residual sales of spare parts. I would argue that any analyst should be aware of such a general claim and therefore would price that into his or her considerations. With that logic I would tilt towards the less wrong b - although amigious I can still argue that those future sales are probably priced differently into the analysts expectations.

Anyone share that though?

"Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company"

I ruled out B because it does not address issue brought up in Rubco's executives' claim. The issue involves the profit that results from the bid directly, nothing else.

D is the only statement that directly addresses profit making from winning this particular bid.
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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27 Apr 2014, 09:48
Can someone shed some light on why C is wrong?

If the facilities are located closer, doesn't that mean that it's reduced cost and therefore higher profits?
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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29 Jul 2014, 23:49
I omitted [D] because the excerpt tells me Rubco earns no money from producing and selling this tire to Maxilux

if OA is D it is assumed that Rubco can sell directly to consumers, presumably at a higher price than the bid

where can I make this connection?
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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05 Aug 2014, 21:48
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I don't think D makes sense. It's increasing revenue for sure. I agree with this, but the question is referring to profit and not revenue. More revenue does not mean more profit. C would reduce costs. There's a reason why major suppliers build facilities next to major manufacturers. Transportation is a huge cost.

Source: I'm a CPA and I work in Supply Chain. I analyze these numbers everyday.
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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12 Mar 2015, 03:27
betterscore wrote:
The Maxilux car company's design for its new luxury model, the Max 100, included a special design for the tires that was intended to complement the model's image. The winning bid for supplying these tires was submitted by Rubco. Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company.

Which of the following, if true, most strongly justifies the claim made by Rubco's executives?

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.

(D) When people who have purchased a carefully designed luxury automobile need to replace a worn part of it, they almost invariably replace it with a part of exactly the same make and type.

(E) When Maxilux awarded the tire contract to Rubco, the only criterion on which Rubco's bid was clearly ahead of its competitors' bids was price.

D it is , reason : Next time people will buy the same tire , hence Rubco will earn

(D) When people who have purchased a carefully designed luxury automobile need to replace a worn part of it, they almost invariably replace it with a part of exactly the same make and type.
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The Maxilux car company's design for its new luxury model, [#permalink]

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25 Oct 2015, 16:35
Believe the important point to remember here is that Rubco can sell more tires AT A HIGHER COST to the car owners(as mentioned in an earlier post). Because of this answer D makes sense. Rubco will make and sell tires to Maxilux AT cost, but sell to the consumer for a profit. I was initially confused too, because you make a profit if you can sell at a price which is above what it costs you to manufacture it. I wasn't thinking that you can sell to the end consumer at a higher price.
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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06 Nov 2015, 04:02
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rjacobsMGMAT wrote:
(D). Profit = Revenue - Cost. The premises show that revenue from Maxilux will equal cost. So to strengthen the argument, we need additional revenue from elsewhere. (B) is close because it generates additional revenue, but that revenue is also from Maxilux so the revenue will most likely not exceed the cost here either. (D) is the only answer choice that adds the kind of outside revenue stream we want.

In my opinion the only reason to eliminate (B) is that, the exclusive contracts are already held by RUBCO , so the new bid will not change anything with that.
D is the only relevant option, but as for me still not clear as we're talking about profits and there is nowhere stated in this answer choice that the price will be greater than the price in the bid.... we could have more revenues but "0" Profit.
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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09 Nov 2015, 12:35
Isnt A worthy enough for discussion
Infact I found A more closer answer than B

And D on the other side talks about generic terms tires can be part of the worn out stuff

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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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05 Apr 2016, 21:19
rjacobsMGMAT wrote:
(D). Profit = Revenue - Cost. The premises show that revenue from Maxilux will equal cost. So to strengthen the argument, we need additional revenue from elsewhere. (B) is close because it generates additional revenue, but that revenue is also from Maxilux so the revenue will most likely not exceed the cost here either. (D) is the only answer choice that adds the kind of outside revenue stream we want.

Can someone please state the conclusion and premise and identify whether the option D fills the gap between conclusion and premise as this strengthen the argument?
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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08 Aug 2016, 11:27
Hi ,

I find choice D as less of a strengthener as we are not given whether Rubco will sell the replacement tyres at a higher price directly to consumers. If they sell the replacements to Maxilux directly , the profit will be approx zero as stated earlier.
Choice C in my opinion will cut down the Logistical and Transportation cost and help in increasing profits. Thus it makes the Rubco executives' claim more believable.

Experts , Any thoughts on this ?
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Re: The Maxilux car company's design for its new luxury model, [#permalink]

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16 Aug 2016, 18:51
russ9 wrote:
Can someone shed some light on why C is wrong?

If the facilities are located closer, doesn't that mean that it's reduced cost and therefore higher profits?

Because the analyst said that M's purchase price is just cover cost (which is the cost of the materials to be used to make the tires). So R will be unprofitable if it incurs any other cost. If the facilities are located close, R still need transportation cost anyhow. (C) makes R "less unprofitable", it does not make R "become profitable".
Re: The Maxilux car company's design for its new luxury model,   [#permalink] 16 Aug 2016, 18:51
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