EXCO

In 1984 Exco, which sells it s products only through mail-order catalogs, began distributing its catalog to people who had never purchased Exco’s products, while it continued to distribute the catalog to previous customers. Total dollar sales increased in 1984, but Exco’s profits that year were smaller than in 1983.
Which of the following, if true, contributes most to an explanation of Exco’s smaller profits in 1984, as compared to 1983?

This is simple one. sales increased but profits did not.
Profit = sold amount - CostAmount

Sold Amount increased. But Profit Decreased. Hence COSt Amount should have increased at the same time.
Passage gives reference to distribution of catalogs.
Hence if any option says that the cost of distributing catalogs is high than the increase in sales. It should be the ght answer.

Option E does this. Pick E.


(A) There was a two percent increase in 1984 in the sales tax that consumers had to pay on all purchases from the catalog.

This is a trap choice. If consumers pay the tax, it doesnt affect the company.

(B) A greater number of catalogs were sent to previous customers than to people who never purchased products from Exco.

This might be true. But, This doesnt provide support to show the decrease in profits. Infact sales increased. so this is wrong choice.

(C) In 1984 Exco’s product-manufacturing costs increased by a smaller amount than the products’ selling prices increased.

this is weakening the conclusion. it says that Costamount did nto increase much. Wrong.

(D) Customers who never previously purchased products from Exco purchased, on the average, fewer products in 1984 than did previous customers.

Might be true. same as B. sales increased. So we are not worried who bought the products.

(E) The increase between 1983 and 1984 in the cost of mailing the catalogs was greater than the increase in sales from 1983 to 1984.
Spot on.

Hope this helps!!

(E) The increase between 1983 and 1984 in the cost of mailing the catalogs was greater than the increase in sales from 1983 to 1984.



The way i understand E is
increase in the cost of mailing extra catalogs > increase in sales

increase in sales i thought of as increase in the number of items sold
not profit from sales

dont you think this can be interpreted this way

krishnakumarhod wrote:(E) The increase between 1983 and 1984 in the cost of mailing the catalogs was greater than the increase in sales from 1983 to 1984.



The way i understand E is
increase in the cost of mailing extra catalogs > increase in sales

increase in sales i thought of as increase in the number of items sold
not profit from sales

dont you think this can be interpreted this way

Yes. your interpretation is correct. since that cost is more than the salesprice, it adds to the cost price and will eventually decrease the profit.

Helps??

krishnakumarhod wrote:(E) The increase between 1983 and 1984 in the cost of mailing the catalogs was greater than the increase in sales from 1983 to 1984.



The way i understand E is
increase in the cost of mailing extra catalogs > increase in sales

increase in sales i thought of as increase in the number of items sold
not profit from sales

dont you think this can be interpreted this way

Kvcp has already provided a great explanation. Just to elaborate on why E is correct.

1983 - Price + mailing cost
1984 - Price + increase in price + mailing cost + increase in mailing cost

Net Income of the company are directly proportional to the increase in price and inversely proportional to increase in mailing costs.

E says that increase in mailing cost was more than increase in price. Thus, overall effect on the income of the company is negative. Thus E is our answer.

IMO E

(E) The increase between 1983 and 1984 in the cost of mailing the catalogs was greater than the increase in sales from 1983 to 1984.

Profit = Sales - Cost

Cost(84) - Cost(83) > Sales (84) - Sales (83)

or,

Sales(83) - Cost (83) > Sales(84) - Cost (84)

or,

Profit ( 83) > Profit (84)