Company X and Management

n_niaz · Posted: Sat Jul 05, 2008 7:29 pm Post subject: Company X and Management

Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?

A) Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.
B) Company profits will not decline below their current level.
C) Higher gasoline prices will not reduce the company’s revenues from other business lines.
D) The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.
E) The supply of gasoline is likely to decline over the next quarter.

netigen · Posted: Sat Jul 05, 2008 9:50 pm Post subject:

This is a % vs. numbers question.

The ans is A because if the consumption decreases the revenue will also decrease hence it means that company assumes that the consumption will not decrease.

NSNguyen · Posted: Sat Jul 05, 2008 11:08 pm Post subject:

For this question we will be in the middle of A and D
However, assumps that D is the OA, we will leave out the if the revenue decrease when the gasoline price increases, the company cannot keeps the profit 10% increase,
So that A is better than D,
I would go with A
Very Happy

n_niaz · Posted: Sun Jul 06, 2008 9:16 pm Post subject: OA

The OA is A. Cool.

sumant1808 · Posted: Tue Jul 15, 2008 1:49 am Post subject: Re: gasoline prices

IMO A:

As we are considering increase in revenues not in profit. D caters to profit....