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Acquisition cost of cars - Terribly unclear

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Acquisition cost of cars - Terribly unclear

by Vishnu88 » Mon May 30, 2011 12:19 pm
At the beginning of last year, Tony's Auto dealership had 200 cars available for sale on the lot. The cars were acquired by Tony's at an average cost of $10,000 each. During last year, Tony's acquired an additional 50 cars. What was the total acquisition cost on the lot at Tony's at the end of the year?

1.) The average cost per car of all cars acquired by Tony's last year was $12,500.

2.) The total revenue from cars sold last year was $1,050,000.

The answer is E

Source: Veritas CATs

I am really not sure why answer A wouldn't be sufficient by itself.
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by SoCan » Mon May 30, 2011 12:28 pm
Vishnu88 wrote: I am really not sure why answer A wouldn't be sufficient by itself.
Because the question is asking for the acquisition cost for all the cars left at the end of the year. With statement 1), we know the acquisition cost of all the cars that were already on the lots plus those purchased (which is probably what you were thinking you needed to answer), but we have no idea how many cars were sold and their acquisition costs. For example, Tony's could have sold all 250 cars, so the acquisition cost of cars left on the lot is $0, or he could have sold none of them, in which case the acquisition cost of cars left on the lot is $2,625,000.

Even when you combine with statement A, you don't know. For all we know, Tony's could have sold one car for $1,050,000 and (likely) taken a big profit on that car, or he could have sold all the cars for that much and taken a loss.
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by cans » Mon May 30, 2011 12:29 pm
Initially 200 cars - price = 10k each
During the year 50 cars acquired
Total cost of cars at end of year = ?
1) Cars acquired during year=50, and price of each car = 12.5k
but we can't find total cost at the end because we don't know how many cars were sold during the year. So insufficient.
2) Total revenue = 1050k
But we don't know at what price cars were sold and thus we can't find no. of cars remaining at the end of year. Insufficient.
Both 1& 2 - Again information about no. of cars sold not given, thus insufficient
IMO E
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by Vishnu88 » Mon May 30, 2011 12:38 pm
Tricked by the wordings at the end.

Thanks for the responses.
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