Plz explain with OA, as I couldn't figure out both!

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galaxian: Senior | Next Rank: 100 Posts; Posts: 79; Joined: Mon Jan 17, 2011 4:51 amFollowed by: 5 members; Location: Hyderabad, India; Thanked: 8 times

by galaxian » Tue Jul 26, 2011 3:30 am

Company WXYZ manufactures and sells only four products: widgets, xylophones, yo-yos and zippers. For the past four years, the company has operated profitably. During that time, it has incurred thirty per cent of its costs manufacturing and distributing xylophones. During the same four years, sales of widgets, yo-yos and zippers have accounted for sixty per cent of the company's revenue.

Which of the following is most strongly supported by the paragraph above?

A. Zippers are more expensive to manufacture than xylophones.
B. Xylophones are the most profitable products produced by WXYZ.
C. Revenues from the sales of yo-yos exceed the costs of producing them.
D. The company's profit margin on xylophones exceeds twenty-five per cent.
E. The revenue of Company WXYZ has not increased in the last four years.

Source : GMATClub

Source: Beat The GMAT — Critical Reasoning | Tue Jul 26, 2011 3:30 am

pemdas: Legendary Member; Posts: 1084; Joined: Fri Apr 15, 2011 2:33 pmFollowed by: 21 members; Thanked: 158 times

by pemdas » Tue Jul 26, 2011 4:18 am

i'm not sure, but think it's d

since company operates profitably, the margin of break-even (0.4 Sales -0.3 Expenses) will return 0.1 which is 25% of total Sales; it must be 25%+ to be profitable enterprise

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abhisays: Senior | Next Rank: 100 Posts; Posts: 54; Joined: Sun Nov 29, 2009 7:11 pm; Location: Bangalore; Thanked: 4 times

by abhisays » Tue Jul 26, 2011 4:35 am

I think, the answer should be C

Frankenstein: Legendary Member; Posts: 1448; Joined: Tue May 17, 2011 9:55 amFollowed by: 53 members; Location: India; Thanked: 375 times

by Frankenstein » Tue Jul 26, 2011 4:42 am

Hi,
Let C be the total costs incurred. X accounts for 0.3C and WYZ account for 0.7C
Let S be the total revenue. X accounts for 0.4S and WYZ account for 0.6S
Given that the company is always profitable. So, S>C
Consider the profit margin of X. It is (0.4S - 0.3C)
Profit margin of company is S-C
So, Fraction is (0.4S - 0.3C)/(S-C) = [0.1S + 0.3(S-C)]/(S-C) = 0.3+ (0.1S)/(S-C) > 30%

Hence, D

Last edited by Frankenstein on Tue Jul 26, 2011 4:50 am, edited 2 times in total.

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GmatKiss: Legendary Member; Posts: 2789; Joined: Tue Jul 26, 2011 12:19 amFollowed by: 43 members; Location: Chennai, India; Thanked: 206 times; GMAT Score:640

by GmatKiss » Tue Jul 26, 2011 4:45 am

IMO : B

cost of xylo : 30 % (manufacturing cost) --- Given
cost of others : 70 % (manufacturing cost)

revenue from others : 60 % (Actual revenue) --- Given
revenue from xylo : 40 % (Actual revenue)

xylo takes only 30 % of costs and accounts to 40 % of the revenue, hence B!

Frankenstein: Legendary Member; Posts: 1448; Joined: Tue May 17, 2011 9:55 amFollowed by: 53 members; Location: India; Thanked: 375 times

by Frankenstein » Tue Jul 26, 2011 5:13 am

GmatKiss wrote:IMO : B

cost of xylo : 30 % (manufacturing cost) --- Given
cost of others : 70 % (manufacturing cost)

revenue from others : 60 % (Actual revenue) --- Given
revenue from xylo : 40 % (Actual revenue)

xylo takes only 30 % of costs and accounts to 40 % of the revenue, hence B!

Hi,
Consider:
Product---W----X----Y----Z
COST(100)-10--30---30---30
REVENUE--500-400---30---70
(1000)
PROFIT---490-370----0---40
(900)
W is more profitable than X. So, A,B,C are false.
Well, coming to my previous post Profit share of X is (0.4S - 0.3C)/(S-C) = [0.4(S-C)+0.1C]/(S-C) = (0.4)+[0.1C/(S-C)], which is in fact > 40%.

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mundasingh123: Legendary Member; Posts: 2330; Joined: Fri Jan 15, 2010 5:14 amFollowed by: 26 members; Thanked: 56 times

by mundasingh123 » Tue Jul 26, 2011 6:44 am

How can the OA be D ?
to calculate profit margin we should know the Revenue figure as well as Expenditure .

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Frankenstein: Legendary Member; Posts: 1448; Joined: Tue May 17, 2011 9:55 amFollowed by: 53 members; Location: India; Thanked: 375 times

by Frankenstein » Tue Jul 26, 2011 7:15 am

mundasingh123 wrote:How can the OA be D ?
to calculate profit margin we should know the Revenue figure as well as Expenditure .

Hi,
We are not calculating absolute profits. We are calculating profit share from Xylophones of the total profit of the company, and even this cannot be a definite figure. We can only find the range of it.
We are actually considering Profits = Revenue - (manufacturing costs + distribution costs).

Cheers!

Things are not what they appear to be... nor are they otherwise

mundasingh123: Legendary Member; Posts: 2330; Joined: Fri Jan 15, 2010 5:14 amFollowed by: 26 members; Thanked: 56 times

by mundasingh123 » Tue Jul 26, 2011 7:48 am

Frankenstein wrote:
mundasingh123 wrote:How can the OA be D ?
to calculate profit margin we should know the Revenue figure as well as Expenditure .
Hi,
We are not calculating absolute profits. We are calculating profit share from Xylophones of the total profit of the company, and even this cannot be a definite figure. We can only find the range of it.
We are actually considering Profits = Revenue - (manufacturing costs + distribution costs).

Yes i know i am pointing out the likelihood that D is the OA as pointed out by people in the beginning of this thread

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