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16 Sep 2014, 01:59
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Difficulty:
95%
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Question Stats:
24% (02:07) correct
76%
(01:26)
wrong
based on 45
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The cost of certain manufacturing steps of gas-burning grills dropped last year compared to the previous year. Hank’s Hardware responded to this drop in cost by reducing the sales price and aggressively spending in advertising campaigns, thereby prompting a rise in sold quantity. Because of the reduction in sales price and the aggressive advertising campaigns, the quantity of gas grills sold at Hank’s Hardware increased last year compared to the previous year. However at the end of last year, managers were surprised to find that their profits on gas grills last year were lower than that the previous year.
All of the following, if true, may provide an explanation, in some way, for the drop in profit of Hank’s Hardware except which one?
A. The actual increase in sales quantity of Hank’s Hardware last year was lower than that expected by the managers.
B. Hank’s hardware outsources the manufacturing of gas grills to subcontracted manufacturers.
C. The additional cost of advertising campaigns were as high as the drop in Hank’s manufacturing costs.
D. Although the cost per unit decreased, the profit per unit did not change because of the discount offered in sales price.
E. Lower manufacturing costs were caused by using inferior material, thereby resulting in poor quality and a higher number of returns of sold items.
All of the following, if true, may provide an explanation, in some way, for the drop in profit of Hank’s Hardware except which one?
A. The actual increase in sales quantity of Hank’s Hardware last year was lower than that expected by the managers.
B. Hank’s hardware outsources the manufacturing of gas grills to subcontracted manufacturers.
C. The additional cost of advertising campaigns were as high as the drop in Hank’s manufacturing costs.
D. Although the cost per unit decreased, the profit per unit did not change because of the discount offered in sales price.
E. Lower manufacturing costs were caused by using inferior material, thereby resulting in poor quality and a higher number of returns of sold items.
16 Sep 2014, 01:59
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Official Solution:
The cost of certain manufacturing steps of gas-burning grills dropped last year compared to the previous year. Hank’s Hardware responded to this drop in cost by reducing the sales price and aggressively spending in advertising campaigns, thereby prompting a rise in sold quantity. Because of the reduction in sales price and the aggressive advertising campaigns, the quantity of gas grills sold at Hank’s Hardware increased last year compared to the previous year. However at the end of last year, managers were surprised to find that their profits on gas grills last year were lower than that the previous year.
All of the following, if true, may provide an explanation, in some way, for the drop in profit of Hank’s Hardware except which one?
A. The actual increase in sales quantity of Hank’s Hardware last year was lower than that expected by the managers.
B. Hank’s hardware outsources the manufacturing of gas grills to subcontracted manufacturers.
C. The additional cost of advertising campaigns were as high as the drop in Hank’s manufacturing costs.
D. Although the cost per unit decreased, the profit per unit did not change because of the discount offered in sales price.
E. Lower manufacturing costs were caused by using inferior material, thereby resulting in poor quality and a higher number of returns of sold items.
A. The option can explain why the profit was lower - the drop in sales price may result in a drop in profit per unit and in such a situation, a certain number of additional units are required to be sold to reach the same amount of total profit as the previous year. Hence, if the number of units sold is lower than the calculated units required to achieve the same total profit corresponding to a certain discount offered, then the profit would be lower than the previous year.
B. This option implies that the advantage of the drop in manufacturing costs was enjoyed by the subcontracted manufacturers and may not have been passed on to Hank’s Hardware. In that case a drop in sales price by Hank’s Hardware would result in a drop in total profit and in such a situation, if the number of units sold does not increase above a certain point, then the profit would be lower than the previous year.
C. This option implies that the total cost remained unchanged whereas Hank’s Hardware offered a discount in selling price, resulting in a reduction in profit.
D. CORRECT. This option does not, in any way, explain the reduction in profit. If the profit per unit did not change then the increased quantity must result in an increased profit. Hence the reduction in profit cannot be explained by any means by this option.
E. When the number of returns increase, the cost for these returns may not be recoverable whereas the revenue is reduced because of the returns. Thus this option may explain the reduction in profit.
Answer: D
The cost of certain manufacturing steps of gas-burning grills dropped last year compared to the previous year. Hank’s Hardware responded to this drop in cost by reducing the sales price and aggressively spending in advertising campaigns, thereby prompting a rise in sold quantity. Because of the reduction in sales price and the aggressive advertising campaigns, the quantity of gas grills sold at Hank’s Hardware increased last year compared to the previous year. However at the end of last year, managers were surprised to find that their profits on gas grills last year were lower than that the previous year.
All of the following, if true, may provide an explanation, in some way, for the drop in profit of Hank’s Hardware except which one?
A. The actual increase in sales quantity of Hank’s Hardware last year was lower than that expected by the managers.
B. Hank’s hardware outsources the manufacturing of gas grills to subcontracted manufacturers.
C. The additional cost of advertising campaigns were as high as the drop in Hank’s manufacturing costs.
D. Although the cost per unit decreased, the profit per unit did not change because of the discount offered in sales price.
E. Lower manufacturing costs were caused by using inferior material, thereby resulting in poor quality and a higher number of returns of sold items.
A. The option can explain why the profit was lower - the drop in sales price may result in a drop in profit per unit and in such a situation, a certain number of additional units are required to be sold to reach the same amount of total profit as the previous year. Hence, if the number of units sold is lower than the calculated units required to achieve the same total profit corresponding to a certain discount offered, then the profit would be lower than the previous year.
B. This option implies that the advantage of the drop in manufacturing costs was enjoyed by the subcontracted manufacturers and may not have been passed on to Hank’s Hardware. In that case a drop in sales price by Hank’s Hardware would result in a drop in total profit and in such a situation, if the number of units sold does not increase above a certain point, then the profit would be lower than the previous year.
C. This option implies that the total cost remained unchanged whereas Hank’s Hardware offered a discount in selling price, resulting in a reduction in profit.
D. CORRECT. This option does not, in any way, explain the reduction in profit. If the profit per unit did not change then the increased quantity must result in an increased profit. Hence the reduction in profit cannot be explained by any means by this option.
E. When the number of returns increase, the cost for these returns may not be recoverable whereas the revenue is reduced because of the returns. Thus this option may explain the reduction in profit.
Answer: D
27 Jun 2022, 03:25
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The question or/and solution has been revised and edited. Thank you sayantanc2k !!!
