The Acme Accounting firm has laid off 20 percent of its corporate

Question

The Acme Accounting firm has laid off 20 percent of its corporate staff due to declining profits in the prior fiscal year. These layoffs substantially reduced operating expenses, which had been higher than those of most other accounting firms of similar size that offer similar services. However, a consultant hired by Acme predicted that these layoffs would not result in a net profit for Acme.

Which of the following, if true, would provide the strongest justification for the consultant's prediction?

A. Acme's net profits were already lower than those of other accounting firms of similar size.

B. Acme did not lay off any staff from several departments that have relatively high operating expenses.

C. Accounting firms that hire some of the laid-off staff will probably acquire some of Acme's clients.

D. An accounting firm that is substantially larger than Acme experienced lower profits after having laid off 20 percent of its corporate staff.

E. The most profitable accounting firms have been able to reduce operating expenses without resorting to layoffs.

MartyMurray · Accepted Answer

The Acme Accounting firm has laid off 20 percent of its corporate staff due to declining profits in the prior fiscal year. These layoffs substantially reduced operating expenses, which had been higher than those of most other accounting firms of similar size that offer similar services. However, a consultant hired by Acme predicted that these layoffs would not result in a net profit for Acme.

The consultant's prediction (conclusion) is the following:

these layoffs   not result in a net profit for Acme

The passage does not provide any support for the consultant's prediction. In fact, the passage provides reason to believe that the layoffs will result in a net profit for Acme:

These layoffs substantially reduced operating expenses, which had been higher than those of most other accounting firms of similar size that offer similar services.

That the passage doesn't provide support for the conclusion is not surprising. Often, in Strengthen questions, the passage does not provide any support for the conclusion.

Which of the following, if true, would provide the strongest justification for the consultant's prediction?

The correct answer will provide support for the consultant's prediction.

A. Acme's net profits were already lower than those of other accounting firms of similar size.

This choice does not support the prediction.

After all, the fact that, in the past, Acme's profits were lower than those of other firms does not mean that, in the future, after reducing expenses, Acme won't be profitable.

In fact, rather than support the consultant's prediction, this choice follows from something the passage says:

These layoffs substantially reduced  operating expenses, which had been higher than those of most other accounting firms of similar size  that offer similar services.

Since we're looking for support for the consutlant's prediction rather than a conclusion supported by the passage, this choice does something other than what we need.

Eliminate.

B. Acme did not lay off any staff from several departments that have relatively high operating expenses.

This choice is tricky because it could seem to support the consultant's prediction by indicating that the layoffs won't help Acme to become profitable because, even after the layoffs, Acme will have high operating expenses.

So, to see why this choice is incorrect, we need to notice the following in the passage:

These layoffs substantially reduced operating expenses

Given that statement, we know that, even though, as this choice says, "Acme did not lay off any staff from several departments that have relatively high operating expenses," Acme did reduce expenses substantially by laying off staff.

So, this choice doesn't mean that Acme didn't reduce expenses and thus doesn't support the consultant's prediction.

Eliminate.

C. Accounting firms that hire some of the laid-off staff will probably acquire some of Acme's clients.

This choice is interesting.

While it doesn't prove for sure that Acme won't achieve net profitability through the layoffs, it is a reason to believe Acme may not.

After all, if Acme loses clients to other firms, then even though Acme reduced expenses, it will also experience a reduction in revenue, and a reduction in expenses may not help Acme become profitable if its revenue decreases as well.

So, while "probably" in this choice indicates that the outcome is uncertain, this choice does provide at least some support for the consultant's prediction.

Keep.

D. An accounting firm that is substantially larger than Acme experienced lower profits after having laid off 20 percent of its corporate staff.

This choice is tempting because it could seem to indicate that, in general, layoffs don't work for accounting firms.

At the same time, we can eliminate this choice for a couple reasons.

One is that this choice is about "An accounting firm that is substantially larger than Acme." So, the question writer has signaled to us that the situation presented by this choice may not be comparable to Acme's situation and that, therefore, what this choice says probably doesn't apply to Acme.

Also, the fact that layoffs didn't cause a different firm to experience increased profits doesn't really indicate that they won't for Acme. Common sense tells us that Acme's reduction in operating expenses through layoffs could result in Acme's becoming profitable even if another firm didn't. In other words, layoffs can work.

So, the fact that another firm experienced lower profits after layoffs doesn't mean that Acme won't become profitable through layoffs. Perhaps the other firm had some major issues that caused its profits to decline. Acme's situatoin could be quite different from the other firm's. For one thing, we know from the passage that Acme's operating expenses "had been higher than those of most other accounting firms of similar size that offer similar services." So, it makes sense that, by reducing operating expenses to cause them to be more like those of other firms, Acme could become profitable.

Eliminate.

E. The most profitable accounting firms have been able to reduce operating expenses without resorting to layoffs.

This choice has no effect on the support for the conclusion.

After all, the fact that other firms didn't need layoffs to reduce expenses doesn't mean that layoffs won't work for Acme.

In other words, the fact that layoffs are not necessary doesn't mean that they are not sufficient for reducing expenses and achieving profitability.

Eliminate.

Correct answer:  C

playthegame · Answer

Thank you Marty, yes this one had some close options isn't it.

GMAT745owner · Answer

Though costs are deducted, profits are decreased too.

Raman109 · Answer

The Acme Accounting firm has laid off 20 percent of its corporate staff due to declining profits in the prior fiscal year. - Background Info.

These layoffs substantially reduced operating expenses, which had been higher than those of most other accounting firms of similar size that offer similar services. - Background Info.

However, a consultant hired by Acme predicted that these layoffs would not result in a net profit for Acme. - conclusion.

Profit = Revenue - cost

Which of the following, if true, would provide the strongest justification for the consultant's prediction?

A. Acme's net profits were already lower than those of other accounting firms of similar size. - comparison with others is out of scope. The profits may still have increased for Acme in even if its net profits are lower than competitors.

B. Acme did not lay off any staff from several departments that have relatively high operating expenses. - how they did it is out of scope.

C. Accounting firms that hire some of the laid-off staff will probably acquire some of Acme's clients. - the revenue loss. So even is you reduced the cost, the revenue will also be lost.

D. An accounting firm that is substantially larger than Acme experienced lower profits after having laid off 20 percent of its corporate staff. - out of scope.

E. The most profitable accounting firms have been able to reduce operating expenses without resorting to layoffs. - out of scope.

VerbalBot · Answer

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The Acme Accounting firm has laid off 20 percent of its corporate

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