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

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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
Hi GMATNinja GMATNinjaTwo

Can you suggest if (A) weakens the claim:
If Rubco had to supply additional spare tires their profits will eventually get down.
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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.

I am not sure why C is incorrect. To me it seems that if the facilities are near to each other then Rubco will be able to save on transportation.

(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.

Now with regards to D, I thought that even if there are people who purchase the worn out part, they may not be enough in numbers to cover the cost of the tyre...

Can someone help me on this please?
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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
i feel next to option d , option a is kindof close contender, with an assumption bid doesnt cover the cost of spare. then it will add extra revenue . how come option B i dont know it is easy to eliminate as it dont talk about the bid in question..

anybody sharing same thought?
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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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.
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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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.

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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
Hi Gmat NINJA

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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
Horare wrote:
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

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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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.
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
Snehaaaaa 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.

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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
Marcab wrote:
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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Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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?
Re: The Maxilux car company's design for its new luxury model, the Max 100 [#permalink]
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