BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem

Gally Pumps starting a new business

This topic has expert replies
Post new topic Post Reply
Previous Topic Next Topic
Master | Next Rank: 500 Posts
Posts: 418
Joined: Sun Jul 04, 2010 12:48 pm
Thanked: 6 times
Followed by:3 members

Gally Pumps starting a new business

by gmatdriller » Sun Sep 16, 2012 11:23 pm
Gally Pumps is aiming at starting a new business that offers annual contracts to repair and maintain pumps at refineries. These contracts will include services such as re-balancing, repairing the bearings, replacing the pump impellers as they wear out etc. Since Gally is a newcommer, it aims to compete purely on price. Gally's management is concerned that the revenues from these contracts will not be enough to cover their costs.

Which of the strategies below should Gally employ to ensure its business does not run into losses?

A: Target new refineries such as those built in the last 15 years with pumps that require fewer maintenance actions

B: Offer contracts to refineries that have an extremely active maintenance department

C: Offer premium services that others charge for, at a very low costs

D: Target refineries that are flush with money and can pay for repairs

E: Target refineries where there is well documented repair records based on which Gally can reliably estimate the average annual repair costs

I have a a question regarding the OA, but only after others have made contributions.

Regards.

OA is A Source: E-gmat
Top
Source: — Critical Reasoning |
User avatar
Legendary Member
Posts: 502
Joined: Tue Jun 03, 2008 11:36 pm
Thanked: 99 times
Followed by:21 members

by vk_vinayak » Mon Sep 17, 2012 12:09 am
gmatdriller wrote:Gally Pumps is aiming at starting a new business that offers annual contracts to repair and maintain pumps at refineries. These contracts will include services such as re-balancing, repairing the bearings, replacing the pump impellers as they wear out etc. Since Gally is a newcommer, it aims to compete purely on price. Gally's management is concerned that the revenues from these contracts will not be enough to cover their costs.

Which of the strategies below should Gally employ to ensure its business does not run into losses?

A: Target new refineries such as those built in the last 15 years with pumps that require fewer maintenance actions

B: Offer contracts to refineries that have an extremely active maintenance department

C: Offer premium services that others charge for, at a very low costs

D: Target refineries that are flush with money and can pay for repairs

E: Target refineries where there is well documented repair records based on which Gally can reliably estimate the average annual repair costs

I have a a question regarding the OA, but only after others have made contributions.

Regards.

OA is A Source: E-gmat
I had kept A as an answer until I read E. After reading E, I was contemplating between E and A and eventually chose E. The 'can reliably estimate' part forced me to choose E. Any thoughts?
- VK

I will (Learn. Recognize. Apply)
Top
Junior | Next Rank: 30 Posts
Posts: 26
Joined: Thu Dec 22, 2011 10:22 pm
Thanked: 4 times
Followed by:1 members

by Shalini Suresh » Mon Sep 17, 2012 12:59 am
Gally Pumps is aiming at starting a new business that offers annual contracts to repair and maintain pumps at refineries. These contracts will include services such as re-balancing, repairing the bearings, replacing the pump impellers as they wear out etc. Since Gally is a newcommer, it aims to compete purely on price. Gally's management is concerned that the revenues from these contracts will not be enough to cover their costs.

Which of the strategies below should Gally employ to ensure its business does not run into losses?

A: Target new refineries such as those built in the last 15 years with pumps that require fewer maintenance actions

B: Offer contracts to refineries that have an extremely active maintenance department

C: Offer premium services that others charge for, at a very low costs

D: Target refineries that are flush with money and can pay for repairs

E: Target refineries where there is well documented repair records based on which Gally can reliably estimate the average annual repair costs
Even i was stuck btw A and E
Reason for eliminating E
Refineries with well documented repair records may also include companies that repair quite frequently . The estimate can be more than what Gally pumps can afford. Gally pumps cant afford frequent repairs if they want to cut losses.

If anybody else has an alternate explanation, pls explain
Top
Master | Next Rank: 500 Posts
Posts: 418
Joined: Sun Jul 04, 2010 12:48 pm
Thanked: 6 times
Followed by:3 members

by gmatdriller » Mon Sep 17, 2012 8:40 am
My take:

I am not sure whether the ability of Gally to estimate reliably or erroneously
the annual repair cost is core to achieving its goal.
Perhaps, only speculative for the books.

Because Gally sets out to compete purely on price(offering the best price),
it would be good if it has only few repairs to undertake.
Total cost = units x price per unit (already at the best price)
the only factor left is "units" as given by choice A

In that case, i think option A is the best choice.

Any other opinion is welcome.
Top
Master | Next Rank: 500 Posts
Posts: 101
Joined: Sun Jun 03, 2012 10:10 pm
Thanked: 10 times
Followed by:1 members

by everything's eventual » Mon Sep 17, 2012 6:39 pm
Hello All, my take :

B) : If Gally offers contracts to refineries with extremely active maintenance departments then there is a good chance that Gally will not win those contracts. If these refineries already have an active maintenance department then they do not need a third party to do the same work.

C) : Well, Gally is still offering premium services at very low costs, so there is a very good chance that the business will run into losses.

D) : The refineries can pay but Gally will still charge low ( in order to win over the competition).

E) : Yes, Gally will get a reliable estimate of the average annual repair cost. Then what? If Gally charges more than the average cost and it might not get the contracts and if Gally charges less than the average then it might still suffer losses.

A) : If the maintenance in the refineries is low then the operational costs will be low and Gally ensure that it's business does not run into losses.

I did not choose E because it is mentioned that Gally can only get an idea of the the costs but there is no action taken by Gally in this option to actually ensure that there are no losses.
Top
Post new topic Post Reply
• Page 1 of 1