Last year Company X experienced an unexpectedly steep drop in profits.

Question

Last year Company X experienced an unexpectedly steep drop in profits. To offset this loss, Company X should reduce its workforce by 10%. Doing so will allow the company to save a great deal in payroll expenditures. Company X will therefore be able to recoup its losses. 
 
The argument above assumes that

A. The amount saved in payroll expenditures will exceed the amount lost in profits.

B. The amount saved in payroll expenditures will equal the amount lost in profits.

C. Reducing Company X's workforce will not cause the company to reduce productivity.

D. Company X has no reserve funds to offset its losses.

E. Company X has not at sometime in the past reduced its workforce.

shreyasawhney · Accepted Answer

If we negate option B-
The amount saved in payroll expenditures will NOT BE equal the amount lost in profits then wouldn't it break the argument? Shouldn't B correct answer?

Sreyoshi007 · Answer

Official explanation given by Kaplan -

Conclusion: Company X should reduce its workforce by 10% in order to recoup losses.

Evidence: Company X would save money in payroll expenditures if the workforce were smaller.

The objective of company X is to generate enough revenue to offset past losses, and the evidence states that this can be done by cutting the workforce (since cutting the workforce also means lower payroll expenditures). For this to be true, a smaller workforce must be compatible with revenue generation. If it is not, then company X will not generate revenue and will not recoup past losses. The answer must indicate that these two concepts are compatible. Choice (C) does so by stating that reducing the workforce will not result in a decrease in productivity.

(A) and (B) focus on decreased payroll expenditures rather than on a decreased workforce, and thereby ignore the issue of productivity. It is possible that company X will recoup its losses by a decrease in payroll costs, but then lose even more money due to decreased production. Assuming either (A) or (B) does not guarantee that the company will win in the end. With (D), the argument does not address any other pools of money for possible use; it simply asks about the connection between a smaller workforce and the possibility of recouping losses. And (E), past workforce reductions are not relevant here. We are only concerned with the current pool of employees.

b14kumar · Answer

I think it's C.
Company is assuming that cut in resources will not hamper the productivity and hence it will make same profit but with less expenditure.

Regards,
Brajesh

joshnsit · Answer

There are 2 inherent assumptions to Policy Proposal or GOAL/Target(FORMAT: To achieve goal, this policy shall be adhered) questions: 1) Implementation of Policy will achieve the goal.  Link  2) Implementation of Policy will not impact other aspects of Goal.

It is the second of the inherent assumptions that gets reflected in Choice C.

To add to this, I feel that  loss  in stimulus talks about only one year of loss, whereas the conclusion(Last line: "Company X will therefore be able to recoup the losses.") and target is to recoup ie recover for losses of multiple years, and not a single year. A and B will attempt to recoup company only for this year's loss, but will not help in recouping from upcoming losses, if the employees are lost.

guptakashish02 · Answer

Hi ,
I thought conclusion is "Company X will therefore be able to recoup the losses. " and then chose A option
Sometimes i am not able to figure out the conclusion.

arvind910619 · Answer

Imo C.

This is a very easy question if we see this question from real world scenario but things get muddy when the scope is only the argument. This case demands us to use real world knowledge of market and productivity. A good question to practice since it does not directly affects the conclusion.

Prateek176 · Answer

Even I have the same question.  mikemcgarry  ,  abhimahna  ,  VeritasKarishma  . Can anybody pls enlighten?

Salsanousi · Answer

Here is my attempt, I hope it helps.

I also faced a similar thing at the beginning but then this is what I finally understood.

When we negate option B does it break down the conclusion?

Is it necessary for the conclusion to hold true?

Negating option B, it will not equal the amount lost in profits. Well what if it doesn’t? Maybe the amount saved in payroll expenditures saves more than what is lost? Maybe the amount saved does not cover what is lost? Can we say for sure it will recoup the losses?

When we negate option C, it will reduce productivity and if it does then how can we recoup the losses? We are already losing more.

Posted from my mobile device

Chungrpi · Answer

The other reason to eliminate A and B is that A, and B are clearly stated in the argument, so they are not assumption needed. Remember that assumption is the infor not stated in the argument but is needed for the author to draw the conclusion

HarshaBujji · Answer

Company X will reduce 10% of its workforce to offset the drop in profits. ( Offset the drop ....which means the drop in profit can be covered by the reduction in workforce. )

Conclusion: Company X will recoup its losses by doing this procedure.

Predicted Answer: Reducing the workforce should not impact revenue or production.

POE :
 
A. The amount saved in payroll expenditures will exceed the amount lost in profits.  Irrelavent, Because primise mentions that this procedure will offset the drop in profits

B. The amount saved in payroll expenditures will equal the amount lost in profits.  Irrelavent, Because primise mentions that this procedure will offset the drop in profits

C. Reducing Company X's workforce will not cause the company to reduce productivity.  Hmm, If prodctivity is reduced it further impacts the profit that is not accounted.

D. Company X has no reserve funds to offset its losses.  Irrelavent

E. Company X has not at sometime in the past reduced its workforce. Irrelavent

IMO C.

Karanmahna · Answer

Please correct me if im wrong here - i broke the conclusion by doing the negation test that makes A the correct answer - NOT Exceeds the amount lost , hence wont be able to recoup the loss incurred

Dipon99 · Answer

If negation test is applied on D then it provides another procedure to recoup its losses making it a probable answer choice, isn't it?

samarpan.g28 · Answer

Hi. The proposed solution in the argument is to reduce payroll expenses rather than rely on reserves. So whether they have reserves or not is not the concern here. They want to bring a substantial solution through cutting down the expenses at payroll, rather than a temporary one. I hope this helps.

AbhishekP220108 · Answer

I dont agree with option C, the argument doesnot present anything about productivity. Even if the productivity is low, but before reducing the workforce they have surplus of products. we are only concerned about balancing the loses.

rajatyadav1994 · Answer

Don’t agree with the solution. Even if the productivity reduces, we don’t have information to believe that reducing payroll will still not help recoup losses.

Sajjad1994 · Answer

Hi rajatyadav1994

I would call it overthinking as i think the question is very straight and simple. Official explanation from Kaplan is also posted  here.  See it this way, If the company lays off 10% of its employees, they are basically hoping that the money saved from salaries will make up for the big profit loss they had. But if after cutting staff, the remaining workers produce less maybe because they are overworked, or morale is low, or quality goes down then the company's income could drop even more. If that happens, the money saved from salaries might not be enough to cover the original loss. So, for this plan to work, we have to assume that cutting jobs won’t hurt productivity badly, or at least that any drop in productivity will be smaller than the salary savings. So to make the argument stand we must assume  (C) .

atenim · Answer

I felt B would be right after negating the statement.. but if we see in real world answer c is a better choice as productivity if decreased then losses can increase and it will destroy the conclusion.

Last year Company X experienced an unexpectedly steep drop in profits.

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Last year Company X experienced an unexpectedly steep drop in profits.

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