GMAT Paper Test - Critical Reasoning

Nisha1218

A company's 2 divisions performed with remarkable consistency over the past 3 years" in each of those years, the pharmaceuticals division has accounted for roughly 20 percent of dollar sales and 40 percent of profits, and the chemicals division for the balance.

Which of the following can properly be inferred regarding the past 3 years from the statement above?

A. Total dollar sales for each of the company's divisions have remained roughly constant.

B. The pharmaceuticals division has faced stiffer competition in its markets than has the chemicals division.

C. The chemicals division has realized lower profits per dollar of sales than has the pharmaceuticals division.

D. The product mix offered by each of the company's divisions has remain unchanged.

E. Highly profitable products accounted for a higher percentage of the chemicals divisions's sales than of those of the pharmaceuticals division.

I thought the answer was E, but it's A. Can anyone assist why the answer is A?

givemeanid · Posted: Mon Aug 13, 2007 10:38 am Post subject:

What is the source of this question? The answer should be C.

Nisha1218 · Posted: Mon Aug 13, 2007 11:20 am Post subject:

Oops i meant the answer is C.

Why is it C?

Source: GMAT Paper Test (Code #14/Q#10)

givemeanid · Posted: Mon Aug 13, 2007 11:27 am Post subject:

Pharmaceuticals division has accounted for roughly 20 percent of dollar sales and 40 percent of profits, and the chemicals division for the balance. The chemical division, therefore, accounted for 80% of the sales and 60% of the profits.

Pharma -> 20% sales, 40% profits
Chemical -> 80% sales, 60% profits

Clearly, chemical division realized lower profits per dollar of sales than the pharma division as stated by C.

E cannot be inferred because the passage does not talk about any category of products. It could be the case that profits were equally earned by the prodcuts in the chemical or pharma division but there is no way of inferring that.

Nisha1218 · Posted: Mon Aug 13, 2007 11:53 am Post subject:

Thanks givemeanid!

I now understand why its not E, and kind of get why its C...these are the 2 answers i was debating..

but i still dont understand how you know chemical division realized lower profits per dollar of sales than the pharma division because I would've assumed higher since chemical is at 60%...

Can you explain that point?? maybe using real numbers as an example might help me since I'm a quantitative person,.,..HELP!!!

givemeanid · Posted: Mon Aug 13, 2007 3:54 pm Post subject:

Pharma -> 20% sales, 40% profits
Chemical -> 80% sales, 60% profits

Lets say the revene was $200 and profits were $100 (I would LOVE to have that kind of profit margin in real life!)

So, Pharma has $40 (20% of $200) in sales and $40 in profit (40% of $100)
Chemical has $160 in revenue and $60 in profit.
Profit per dollar for Pharma = 40/40 = 1 which is > than 60/160 for Chemical.

Even if you change the profits to be $50 instead of $100 and keep the revenue same, you get profit per dollar for pharma = 20/40 = 1/2 > 30/160 for chemical.

Play around with some more numbers for sales and profit and you would get the hang of it.