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fixed cost and variable cost

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by ddm » Tue Aug 26, 2008 3:32 pm
The total cost of producing item X is equal to the sum of item X's fixed cost and variable cost. If the variable cost of producing X decreased by 5% in January, by what percent did the total cost of producing item X change in January?

(1) The fixed cost of producing item X increased by 13% in January.

(2) Before the changes in January, the fixed cost of producing item X was 5 times the variable cost of producing item X.
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by nikhilagrawal » Wed Aug 27, 2008 2:08 am
Is ans C ?
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Re: fixed cost and variable cost

by bomond » Wed Aug 27, 2008 11:07 am
ddm wrote:The total cost of producing item X is equal to the sum of item X's fixed cost and variable cost. If the variable cost of producing X decreased by 5% in January, by what percent did the total cost of producing item X change in January?

(1) The fixed cost of producing item X increased by 13% in January.

(2) Before the changes in January, the fixed cost of producing item X was 5 times the variable cost of producing item X.
IMO B.

If the variable cost is a, then fixed cost equals 5a. Variable cost decreased by 5%. It means that it remained as 0.95a. We are not told that there were any changes in fixed cost so the new total cost is 5a+0.95a=5.95a. It decreased from 6a to 5.95a. Approximately to 0.8%
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Re: fixed cost and variable cost

by Stuart@KaplanGMAT » Wed Aug 27, 2008 11:12 am
bomond wrote:
ddm wrote:The total cost of producing item X is equal to the sum of item X's fixed cost and variable cost. If the variable cost of producing X decreased by 5% in January, by what percent did the total cost of producing item X change in January?

(1) The fixed cost of producing item X increased by 13% in January.

(2) Before the changes in January, the fixed cost of producing item X was 5 times the variable cost of producing item X.
IMO B.

If the variable cost is a, then fixed cost equals 5a. Variable cost decreased by 5%. It means that it remained as 0.95a. We are not told that there were any changes in fixed cost so the new total cost is 5a+0.95a=5.95a. It decreased from 6a to 5.95a. Approximately to 0.8%
The answer is C.

Your solution is great, but you fall into the cardinal DS trap - you make a bad assumption.

As you yourself note, "We are not told that there were any changes in fixed cost". However, we're also not told that fixed cost remained the same. In other words, we don't know what happened with fixed cost. We can't assume that fixed costs didn't change just because we're not told one way or the other.

Once we add in (1), however, we have all the information we require.
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Re: fixed cost and variable cost

by bomond » Thu Aug 28, 2008 4:45 am
Stuart Kovinsky wrote:
The answer is C.

Your solution is great, but you fall into the cardinal DS trap - you make a bad assumption.

As you yourself note, "We are not told that there were any changes in fixed cost". However, we're also not told that fixed cost remained the same. In other words, we don't know what happened with fixed cost. We can't assume that fixed costs didn't change just because we're not told one way or the other.

Once we add in (1), however, we have all the information we require.
Yes you are right. First I thought that this is trap. But I got it. Thank you.
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Re: fixed cost and variable cost

by stern » Thu Aug 28, 2008 11:06 am
ddm wrote:The total cost of producing item X is equal to the sum of item X's fixed cost and variable cost. If the variable cost of producing X decreased by 5% in January, by what percent did the total cost of producing item X change in January?

(1) The fixed cost of producing item X increased by 13% in January.

(2) Before the changes in January, the fixed cost of producing item X was 5 times the variable cost of producing item X.
It should be C.
1) gives you the increase in Fixed cost and 2) gives you the ration between fixed cost and variable cost. Clearly either one alone is insufficient.
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