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. ID - CR04364 Maxilux Car Company Step 1: Identify the Question The wording justifies the claim in the question stem indicates that this is either a Strengthen question or an Explain the Discrepancy question. You’ll need to read the argument itself to determine which it is. Step 2: Deconstruct the Argument M’s new car has special tire design R submitted bid for tires Bid just covers cost, BUT: R will still profit? The evidence in the argument doesn’t actually support the executives’ claim. Instead, their claim is surprising—it runs counter to the evidence, which suggests that Rubco will not make a profit. Since the argument includes a surprising claim, and the question asks you to justify that claim, this is an Explain the Discrepancy question. Step 3: Pause and State the Goal On Explain the Discrepancy questions, the argument will describe a surprising phenomenon, and the right answer will give a reason why that phenomenon occurred. In this case, the right answer will present a way in which Rubco might actually make a profit on the tire bid. Step 4: Work from Wrong to Right (A) This answer choice states that the spare tire on the Max 100 will also be a Rubco tire. However, the argument doesn’t make a connection between how many tires Rubco supplies, and what its profit is. It isn’t clear whether supplying more tires will increase Rubco’s likelihood of making a profit. (B) The executives claim that winning the specific Max 100 bid will lead to a profit for Rubco. They don’t claim that Rubco will make a profit in general , or on its other contracts. So, this answer choice does not address the executives’ specific claim. Also, holding exclusive contracts doesn’t necessarily imply that Rubco will make a profit , since the answer choice doesn’t state whether these contracts are profitable . (C) This answer choice seems to imply that the cost for Rubco to transport the tires will be relatively low. The argument already provides information about Rubco’s total costs: the bid only just covers them. Since you already know the relationship between Rubco’s costs and their bid amount, knowing that the transportation costs were low would only tell you that the bid may have also been low. This information doesn’t explain how the bid will be profitable. (D) CORRECT . In the argument, the Max 100 is described as a luxury automobile. According to this answer choice, if consumers want to replace worn tires on a Max 100, they will almost invariably replace them with Rubco tires. By winning the bid, Rubco isn’t just winning the right to supply tires for the Max 100; it’s also winning the future business of Max 100 buyers . This explains why the executives believe that Rubco will make a profit . (E) This may explain why the bid only just covers Rubco’s costs: offering the lowest cost was what enabled Rubco to win the bid. However, that isn’t what the question asks you to justify. It specifically asks for a justification of the claim made by Rubco’s executives.

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The Maxilux car company's design for its new luxury model, the Max 100

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20 Aug 2019, 22:35

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I am thinking against the option D for following reason :
Even if you sell the same tire to more channels the profit contribution on one tyre cost wont change e.g. if you are selling at 5000 INR and you incur a cost of 5000 INR, no matter how much volume you increase you wont make profit ,Until unless you assume that several cost heads would come down because volume is increasing, now this would be an assumption which is a strict No No from what i have understood
While For option E, SInce they have bid only for price and not for specification, they may vary specification to alter cost and hence become profitable.
Need your opinion on this.

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01 Sep 2019, 08:34

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For an explanation of why (D) is the correct answer, please see this post and let me know you have further questions!

Take another look at the exact wording of (E):

Quote:

(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.

(E) doesn't tell us that the bid only included price -- it just tells us that Rubco's bid was "ahead of its competitors' bids" on price, but not clearly ahead on other criteria. So we can't assume that Rubco can just change the specifications at will in order to make a profit.

(E) doesn't support the claim that Rubco will make a profit by winning the bid, so it is not the correct answer.

I hope that helps!

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01 Sep 2019, 11:02

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Hi

I Agree that B is incorrect choice. the exclusive contracts could be already existing.

But, I don't agree with D as well. Cause It never said that Rubco caters to Customers and even if Rubco does cater, it does not answer whether customers are inclined to buy from Rubco as they can get the same at a cheaper price from Maxilux.

There are too many assumptions to make in this choice.

GMATNinja, daagh, Please help.

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Harsh9676

Remember that the correct answer does not have to prove the argument. It simply has to be the choice that most strongly justifies the claim made by Rubco's executives.

If true, choice (D) tells us very explicitly that consumers of a car like the Max 100 will almost invariably replace a worn part with a part of the exact same make and type. This implies that Max 100 owners will replace worn Rubco Max 100 tires with new Rubco Max 100 tires. This effectively increases the expected number of tire sales per Max 100 beyond what is supplied to initially manufacture the car.

You ask whether customers could obtain these tires from Rubco or from Maxilux. But we already know that Rubco is the manufacturer of the tires. So in either instance, Rubco can expect to make a profit, almost invariably, whenever a tire on the Max 100 wears out and needs to be replaced. Either Rubco supplies to Maxilux and earns on that wholesale, or Rubco sells directly to consumers and earns on the retail sale.

Yes, there is some logical wiggle room here because we don't have 100% confirmation of how replacement tire sales fit into the bid and its long-term conditions. We also don't know the precise rate of replacement, and we don't know what Rubco considers to be a fantastic profit margin vs. a sufficient profit margin.

But we don't need any fo those confirmations, because we know from the prompt that Rubco sells the tires, and (D) confirms that people will almost invariably continue to buy them.

I hope this helps!

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12 Mar 2021, 08:31

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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.

(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.

D talks about "worn part" and not necessarily worn tires. Whereas Rubco's contract is about supplying tires. Isnt D an exaggeration?

A particularly talks about spare tires. If same make and model tires are needed, then customers will continue buying and using Rubco's tires.

Can someone please point where the thinking is wrong?

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Alpha420

D talks about "worn part" and not necessarily worn tires. Whereas Rubco's contract is about supplying tires. Isnt D an exaggeration?

A particularly talks about spare tires. If same make and model tires are needed, then customers will continue buying and using Rubco's tires.

Can someone please point where the thinking is wrong?

Hi Alpha420,

"Worn part" would include tires. That is, if owners of such luxury cars (almost) always replace a worn part of their luxury car with a part of the same make and type, we can expect them to do exactly the same thing with their tires. Also, we don't have to worry about whether this statement is an exaggeration or not, because the question stem clearly says "which of the following, if true...".

The problem with option A is that we don't expect the spare tire to be a separate purchase. So in "the winning bid for supplying these tires" that was submitted by Rubco, we can expect the cost of all the tires to be included. That is, the bid would most likely have been for the mounted tires and the spares, not just for the mounted tires.

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Updated on: 15 Apr 2021, 04:54

Originally posted by Fdambro294 on 14 Apr 2021, 18:30.
Last edited by Fdambro294 on 15 Apr 2021, 04:54, edited 1 time in total.

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Very common argument structure.

The facts show that the product being sold is not profitable. Nonetheless, the co.’s executives believe that selling this break-even product (in other cases the product may even lose money) will result in an increase in OVERALL profitability.

Invariably, the correct answer you are looking for will provide new info. about how the sale of the “break-even” product will result in some “SIDE BENEFIT.”

This additional benefit from selling the unprofitable item, which isn’t apparent at first, will result in an Increase in OVERALL Profitability.

Whenever a fact pattern like this appears, the first thing that should pop in your mind is:
how is selling this unprofitable item ——-> going to lead to an additional benefit ———> which will lead to an increase in overall profits

(A), the first choice BTW to catch test takers in a rush, could be seen as this type of benefit. However, the facts tell us that the co. submitted a bid to make the tires for this car. We have no way of knowing whether this bid includes producing the extra spare tires (in real life it probably does). Because (A) would require additional assumptions, we can eliminate it. (Or you may hold on to it to be safe)

(B) tells us that the co. holds exclusive contracts to make other tires. But these contracts are already in place. The co. doesn’t need to sell the break-even product to get this “side benefit.” The co. already has the exclusive contracts and will already earn revenue on them with or without selling the tires. Thus, this new info does not help bolster the claim that selling the tires at cost will lead to an increase in profits.

(C): Without making a ton of additional assumptions, there is nothing in the argument to suggest that the close proximity of the production facility will somehow help the co. achieve an increase in profits.

We can safely eliminate B and C.

(E) helps to explain WHY the co. won the bid in the first place. But explaining why the co. won the bid doesn’t give us any reason to believe the co. will see some kind of additional benefit from selling the tires at cost, leading to increased profits.

Answer (E) is a common wrong answer type that seems to show up quite a bit.

Generally, if an Answer Choice either tells us a little bit more about one of the facts or explains why one of the facts is the way it is, the answer usually will not impact the argument. The facts are already given to us. In most cases, an answer choice that elaborates on something we already known is true will not help.

We can eliminate E

(D) finally gives us one of the “side benefits” of the type disused at the beginning of the post. If it is true that most consumers will replace their tires with the “same make and model”, then the co.’s motivation doesn’t seem to be making money off the bid. Even though the co. will not earn profits on the bid, people will eventually have to replace their tires in many cases. If they choose the same brand, then the co. will see it’s increased profits at a later point.

The scenario reminded me of the recent video game craze occurring this past Christmas. Reports were that Sony had a difficult time obtaining the chips and other components at a cheap enough price to compete with Microsoft on price. The rumor is Sony sold the PS5 to break-even.

However, now that every person in America bought a PS5 (it seems that way), Sony intends to make money on the software sales (the “additional side benefit”).

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My take on the problem -

Executives are happy with the deal even after selling the tires at a price which is very close to the cost price. So almost no profit out of the deal and still the Rubco's executives are delighted, this must be because there is another factor which we are missing to see and the Rubco's executives already know about. Let's find that -

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.
--> To strengthen the argument we could have argued that the actual cost of spare tire was less than other four. If the spare is of inferior quality or make, e.g. mounted tires are alloys and the spare in just steel with not good quality rubber, then Rubco can make profits out of the package of 5 wheel, and hence the whole deal. But this option removes this possibility. Actually there are many car companies in market which do not offer same quality spare tires.

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.
--> This does not help us. Even if Rubco holds exclusive contracts for other models, no where it is mentioned that the new deal helped them land these other contracts. MAY BE Rubco is an old supplier of Maxilux and has multiple contracts for each model.

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.
--> The facilities are in close proximity by since ages (safe assumption) and this not something new for both parties. So while creating a bid/offer this factor would have been considered by Rubco's executives. (maybe that is why option E is valid, Rubco offered low prices as they save cost in shipping). So, this factor might not help generate profits because this is not something that changed because of the new deal.

(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.
--> The profits may come after some years, but considering the number of Max 100 on-raod*life of each car*4-5 tires in each car the profits can be made from the car users. Sad reality! but right answer.

(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, so this option says that Rubco's bid/offer was clearly ahead (better than) of its competitors' on price. This means
that Rubco is cheaper than its competitor's (MAY BE because of proximity advantage from option C). Anyway, this might be the reason they won the deal but we cannot forget that the selling price of tire is almost equal to cost price of tire still. This option does not change this factor in anyway + does not give any reason why executives are still happy with the deal.

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04 Aug 2021, 19:05

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Hi Gmat NINJA

Can you please explain D?

My logic says that if this fact is known, it may be known by all companies and hence accounted for by everyone in their bids.
The winning answer thus could be C, factoring in something that not all companies have..
Analysts knowing the cost part is subjective just like this option ,D, being known by many companies.

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AashishGautam

We cover (C) and (D) in more detail in this post and this post. But the important thing to remember is the precise wording of the argument.

The bid submitted by Rubco is to supply tires for the Max 100. The analysts claim that the revenue received from that bid will only cover Rubco’s cost for the tires on that bid. So, after the bid has been covered and the tires installed, Rubco will be at net zero profit.

However, according to (D), Rubco will sell more tires than what is covered in the bid as replacements are needed. So, as Rubco begins to sell additional tires, it will make a profit on those tires. In that way, winning the bid will profit the company.

I hope that helps!

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I have really combed through the answer choices for this question and I cant get a satisfactory STRENGTHEN answer. Choice D ASSUMES that the repeat purchases for this particular tire (in form of spares) will attract a different price and possibly higher than what was quoted in the bid. But what if the spare tires will be sold at the same price that was quoted in the contract bid? The same price that analysts concluded will cover costs only? Obviously, the company will NOT make profits regardless of how many such spare purchases come through

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30 Aug 2021, 09:17

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Horare

Hi Horare,

You've identified some valid problems with D, but the GMAT doesn't ask us to mark a "perfect option". If D is better than the other options, we should mark it and move on.

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betterscore

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.
This doesn't have the slightest impact on the paragraph therefore out

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.
THis adress how the current bid can be turned into a profit margin

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.
This has no adressing to the bid therefore out

(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.
This exactly address the issue and helps since the additional exachangge will help them make profit

(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 can affect both ways since low price or high price is not stated

Therefore IMO D

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28 Dec 2021, 03:08

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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.

I'm confused between D and E, can someone explain to me why E is wrong?
There could be a possibility that Rubco's bid price is a trade-off between its price and some other criteria(material or parts used, quality) that would help them make a profit and Maxilux car company has ignored this criterion??

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P - Rubco won bid
P - Analysts say bid will cover only cost (no profit from the bid, R=C)
C - Rubco says there will be profit from this Bid
Prethinking - Profit = R - C, so to show profit, we need R > C, a) maybe Rubco will generate Revenue in Long term? 2) Would they cut other costs involved!

A, C and E are Out of Scope.

B - Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux. - Though these deals are exclusive, how do we know they are bringing in the profits for Rubco. Maybe they are also won at same cost covering basis only! Hence Out of Scope

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. Eg. if a tire got worn out, people will buy it from Rubco, hence additional revenue! therefore, correct Choice.

B and D were tough contenders, but B must be out because if u look closely at the argument, we are only concerned with why this bid will bring profit and we do not know any thing about other deals!

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08 Jan 2022, 16:26

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I agree with few of the posts here.
This is a poorly worded question since whenever you have a choice of making profit.
For instance, here:-
1. Make profit by other contracts and
2. Make profit by creating replacement Market.
Point 1 should take precedence over the second because it might take sometime for the tires to worn out.
Normally a tire is replaced between 3 to 5 years. Getting a second contract to supply tires might cut short the route to profit.
GMAT should really avoid such loosely worded questions.

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09 Jan 2022, 11:33

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Snehaaaaa

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.

I'm confused between D and E, can someone explain to me why E is wrong?
There could be a possibility that Rubco's bid price is a trade-off between its price and some other criteria(material or parts used, quality) that would help them make a profit and Maxilux car company has ignored this criterion??

As we mentioned in this post, (E) doesn't tell us that Rubco's bid only included price -- it just tells us that Rubco's bid was "ahead of its competitors' bids" on price, but not clearly ahead on other criteria. So we can't say that Maxilux ignored the other criteria.

We know from the argument that Rubco's bid will barely cover the company's costs, and yet Rubco executives somehow expect to make a profit. (E) doesn't tell us why the executives might be right -- it just tells us that Rubco offered a lower price than it's competitors did. So, where's the profit going to come from? We really get no insight into that question from (E).

(D), on the other hand, gives a nice hint at where that profit might come into the picture: Rubco expects to sell more tires later on, and those tires won't be tied to the same contract. So, Rubco is free to increase the price and make a bunch of money on those future sales.

(E) is out, and (D) is the correct answer.

I hope that helps!

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05 May 2022, 18:43

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Marcab

Hii David.
An example will clear all your doubts regarding C.
The screen of Apple's phone iPhone are manufactured by Samsung. They won the bid in, I guess, 2005. Now had Samsung shifted its production facility to US, do you guarantee that it might have been beneficial. NO.Simply because there are several other factors to be looked such as wages. If you think that it could be compensated by less transportation costs, then you may be assuming that transportation costs are much higher.
IN STRENGTHENING QUESTIONS, THERE IS NO PLACE FOR ASSUMPTIONS. A simple No No.
Now in the same example, just even Samsung just covers its production cost, but whenever there is a need to replace the screen, the people will replace it with the same make and type. So people will stick over to this brand. Now Samsung, even if increases its prices, will certainly rule. Though its my opinion

Hope that helps.
-s

Marcab
Thanks for the explanation.
In strengthening questions, no place for assumptions is a fact? Also, does this apply to Weaken questions as well?
TIA.

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11 May 2022, 11:36

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Dear Expert,

I understand why (C) is correct but I do want to make sure that I have a correct reason to eliminate (B)

The problem in B is it doesn't tell that Rubco holds the exclusive contracts because of this deal. Thus, it doesn't strength the claim which told about "the deal"

Am I correct?

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13 May 2022, 07:57

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Tanchat

The correct answer should most strongly justify the claim that "winning the bid will actually make a profit for the company."

Here's (B) again:

Quote:

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

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

First, we have no reason to believe these exclusive contracts will be profitable. They could be profitable, they could "just cover" the cost of producing the tires, or they could lose money. Since we have no basis to conclude these contracts will be profitable, (B) does not justify the claim made by Rubco's executives.

Additionally, as you suggest, Rubco's executives claim that "winning the bid" will make a profit for the company. But we have no reason to believe these exclusive contracts happened as a result of "winning the bid." So regardless of whether the exclusive contracts are profitable, (B) would not support the executives claim that "winning the bid" will make the company a profit.

For both of those reasons, (B) is incorrect.

I hope that helps!