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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
Totally confused, help please. Assumptions questions are very tough for me. Any materials that can be recommended!!!
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
To start with Powerscore CR bible and then Manhattan CR book for advanced concepts .
IF you Practice questions using tags "Assumptions" on GMAT forum it should be more than enough !
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
I think the ans is A, since the question revolves around increase and decrease of sales in various types of bicycles and also that there is profit.

If what shilpi says is right... are we expected to do so much of mathematics while solving a CR :(..

Please post the OA
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
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What is wrong with E?

If the profits have increased inspite of increase in cost (due to more expensive material used) then the market share must be greater than or equal to what it was 5 years ago.
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
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The total amount of profits of Brandeburgh Bicycle Company (BBC) must have increased dramatically over the last 5 years. After BBC developed a light and strong new material for its bicycles, total sales increased to twice what they were 5 years ago. Nevertheless, sales of certain types of bicycles, for which the new material is not used due to its high cost, have remained constant or, as is the case with bicycles for children, have decreased. Four years ago, sales of children’s bicycles constituted 30 percent of the total bicycle sales of BBC, and now they constitute barely 20 percent of all BBC’s sales.

Which of the following must be assumed in order for the assertion that the total amount of profits of BBC has increased dramatically over the last several years to be true?
(A)Increased sales always result in increased profits.
(B)BBC bicycles are not significantly more expensive than 5 years ago.
(C)Over the last 5 years, total sales of BBC racing bicycles did not decrease by more than 70 percent.
(D)Over the last 5 years, the average amount of profit gained by BBC per bicycle sale has decreased by less than 50 percent.
(E)The proportion of bicycle market occupied by bicycles of BBC has not decreased over the last 5 years.

I am finding the argument difficult to understand appreciate if some one could explain. I will post the OA soon.


Hi guerrero25 and nitin. I'm glad to help.

This question is tough, it requires you to have some business knowledges.

ANALYZE THE STIMULUS:

Fact: Total sales increased to twice what they were 5 years ago. KEY WORD: sales increased twice or 200%.
Fact: Sales of certain types of bicycles, for which the new material is not used have remained constant or have decreased.
Conclusion: The total amount of profits of BBC must have increased dramatically over the last 5 years.

Two important formulas:

KEY FORMULA #1: PROFIT MARGIN = TOTAL PROFIT / SALES
KEY FORMULA #2: TOTAL PROFIT = PROFIT MARGIN x SALES


Analyze the case by using example:
Before: Sales: 100; profits: 10 ==> profit margin = profits/sales = 10/100 = 0.1
After 5 years: Sales: 200 (twice); profit: x ==> profit margin = profits/sales = x/200

In order to conclude Total profit (X) increased dramatically,
(1) X must be greater than 10
--OR—
(2) initial ratio profits/sales = 10/100 must reduce less than 50%.

If it reduces greater than 50% (say reduces 60%) to 0.1*(100% - 60%) = 0.04.
Thus, total profit = profits margin ratio x Sales = 0.04 x 200 = 8 < 10. The conclusion fails.

ANALYZE EACH ANSWER:

(A)Increased sales always result in increased profits.
Wrong. Sales increases but profit margin decreases ==> total profit decreases. (see formulas above)

(B)BBC bicycles are not significantly more expensive than 5 years ago.
Wrong. Does not help. Why type of bicycle does not increase price? The one used new material or the one not used new material? You don’t know ==> What if bicycles that are used material do not increase prices (but their costs are high)  Total profit may decrease.

(C)Over the last 5 years, total sales of BBC racing bicycles did not decrease by more than 70 percent.
Wrong. The stimulus clearly says total sales increase twice, so option is meaningless.

(D)Over the last 5 years, the average amount of profit gained by BBC per bicycle sale has decreased by less than 50 percent.
Correct. As stated above. If profit margin reduces less than 50%, but total sale increases 200% ==> total profit increases for sure.

(E)The proportion of bicycle market occupied by bicycles of BBC has not decreased over the last 5 years.
Wrong. TEMPTING. Although the market share of BBC has not decreased, total profit may decrease if profit margin reduces. (See formulas above)

Hope it helps
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
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madhul90 wrote:
I think the ans is A, since the question revolves around increase and decrease of sales in various types of bicycles and also that there is profit.

If what shilpi says is right... are we expected to do so much of mathematics while solving a CR :(..

Please post the OA


Look, i was also confused between A and D, but later on went with D because assumption can never be strong or extreme.

Also., rest any other option doesn't even qualify for the right answer, So the answer has to be D. This was my approach, hope it helps you...
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
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Verdict/Conclusion- Profits of BBC have increased substantially over 5 years.
Given/Premise-
1) BBC started using new material for certain segment of thier products.
Since then the overall sales has been doubled in 5 years.
2) For the products in which new material was not used, the sales either remained the same or decreased. Ex- Sales of Kids Bicycle decreased.
3) 4 years ago kid's bicycle constituted 30% of total sales of BBC, now the same % is 20%.
Now, how did the author concluded that overall profit of BBC has been increased over 5 years?
Clearly, He must have assumed that:
1) The cycles in which new material is used are the highest selling product.
2) The major share of the sales of BBC over 5 years came from the cycles in which new material is used.
3) The profit margin of the other type of cycles in which the new material is not used has not decreased significantly.

Option D is in line with Point#3.
The average profit gained by BBC/cycle has decreased by less than 50 % means the profit didn't depreciate by more than 50% or the profit remained more than 50 % of the profit earned earlier.

Let's say 5 years ago, BBC was selling 100 cycles...so according to the passage, BBC is selling 200 cycles now. Now,let's assume BBC was earning 10$ per cycle as a net profit=> Net profit for 100 cycles was 1000$.
Now, if the net profit got reduced by 50% or it has become 5$/cycle => Net profit will be 200*5 = 1000$, which is equal to the net profit received 5 years ago. So, profit/cycle must be >5$ in order to conclude that BBC's net profit was increased in 5 Year time.
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
Hi target prep please share the explanation for this question
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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
MartyMurray KarishmaB Can you please provide an "easy to understand" explanation for this question ?

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Re: The total amount of profits of Brandeburgh Bicycle Company (BBC) must [#permalink]
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­The total amount of profits of Brandeburgh Bicycle Company (BBC) must have increased dramatically over the last 5 years. After BBC developed a light and strong new material for its bicycles, total sales increased to twice what they were 5 years ago. Nevertheless, sales of certain types of bicycles, for which the new material is not used due to its high cost, have remained constant or, as is the case with bicycles for children, have decreased. Four years ago, sales of children’s bicycles constituted 30 percent of the total bicycle sales of BBC, and now they constitute barely 20 percent of all BBC’s sales.

The conclusion of the argument is the following:

­The total amount of profits of Brandeburgh Bicycle Company (BBC) must have increased dramatically over the last 5 years.

The support for the conclusion is the following:

After BBC developed a light and strong new material for its bicycles, total sales increased to twice what they were 5 years ago.

We are given some other information about BBC's sales as well, but the author appears to have decided that, whatever the mix of products sold has been, since BBC's ales have doubled, its profits must have increased dramatically.

Which of the following must be assumed in order for the assertion that the total amount of profits of BBC has increased dramatically over the last several years to be true?

This is an Assumption question, and the correct answer will be the one such that it's necessary in order for the evidence to effectively support the conclusion.

(A)Increased sales always result in increased profits.

The argument doesn't require this.

After all, the argument is about one company's results over one 5-year period. So, the argument works even if it's not true that, in the case of every company ever, increased sales results in increased profits.

Eliminate.

(B)BBC bicycles are not significantly more expensive than 5 years ago.

Even if BBC bicycles are more expensive, the company could be more profitable. After all, the company could have increased profits by increasing prices.

So, this doesn't have to be true for the argument to work.

Eliminate.

(C)Over the last 5 years, total sales of BBC racing bicycles did not decrease by more than 70 percent.

Even if sales of bikes in this product line decreased, sales overall doubled. So, even if this choice is not true, the evidence still indicates that profits increased.

Eliminate.

(D)Over the last 5 years, the average amount of profit gained by BBC per bicycle sale has decreased by less than 50 percent.

This choice is interesting.

The only evidence we have that indicates that BBC is more profitable is that sales doubled.

So, if the the average amount of profit gained by BBC per bicycle sale has decreased by 50 percent or more, then the argument is wrecked.

After all, if revenue doubled but profit per unit sold decreased by 50 percent, then we have the following outcome:

Profit 5 years ago = Bikes × Profit per bike

Profit now = (2 × Bikes) ×​​​​​​​ (1/2 × Profit per bike)

We see that, if the profit per bike decreased by half, then profits didn't grow at all. So, if profit per sale decreased by 50 percent or more, then, if BBC's sales doubled, BBC is no more profitable or is less profitable than it was 5 years ago.

So, for the argument to work, it must be the case that "Over the last 5 years, the average amount of profit gained by BBC per bicycle sale has decreased by less than 50 percent."

Keep.

(E)The proportion of bicycle market occupied by bicycles of BBC has not decreased over the last 5 years.

The argument doesn't depend on this.

After all, regardless of BBC's market position, BBC itself could have become more profitable.

Eliminate.

Correct answer: D
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