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Company X

by neerajkumar1_1 » Fri Sep 17, 2010 9:24 pm
Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter's revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?


Consumption of gasoline at the company's gas stations will not drop in response to higher prices.

Company profits will not decline below their current level.

Higher gasoline prices will not reduce the company's revenues from other business lines.

The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.

The supply of gasoline is likely to decline over the next quarter.



I feel there are 2 assumptions here...
one, the customer purchases do not drop
second, the amount for purchasing oil does not increase

both the assumptions are mentioned in the answer choices..

Please let me know what u guyz think...
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by Veronica » Sat Sep 18, 2010 12:08 am
neerajkumar1_1 wrote:Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter's revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?


Consumption of gasoline at the company's gas stations will not drop in response to higher prices.

Company profits will not decline below their current level.

Higher gasoline prices will not reduce the company's revenues from other business lines.

The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.

The supply of gasoline is likely to decline over the next quarter.



I feel there are 2 assumptions here...
one, the customer purchases do not drop
second, the amount for purchasing oil does not increase

both the assumptions are mentioned in the answer choices..

Please let me know what u guyz think...
In my opinion, I choose A, because when market price rise, if the consumptions of customers doesn't change, it's sure that the revenue will be higher
With choice D, if the author assume that the cost of purchase will not change, it might be concluded that the profit would be higher.
The remains are irrelavant
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by debmalya_dutta » Sat Sep 18, 2010 8:21 am
neerajkumar1_1 wrote:Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter's revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?


Consumption of gasoline at the company's gas stations will not drop in response to higher prices.

Company profits will not decline below their current level.

Higher gasoline prices will not reduce the company's revenues from other business lines.

The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.

The supply of gasoline is likely to decline over the next quarter.



I feel there are 2 assumptions here...
one, the customer purchases do not drop
second, the amount for purchasing oil does not increase

both the assumptions are mentioned in the answer choices..

Please let me know what u guyz think...
my pick is A
The conclusion is "the management projects that the next quarter's revenues from the sale of gasoline will also increase by approximately 10 percent"
This is based on the fact that "Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent."
The conclusion is logically derivable only if the current demand / sale is unaffected ....
one, the customer purchases do not drop
second, the amount for purchasing oil does not increase
. BTW, how are these two different ? You are saying the same thing in 2 different ways ...
@Deb
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by lokesh r » Sat Sep 18, 2010 1:06 pm
Revenue= Market price + profit.

If M.P increases by 10% Revenue =1.1 Market Price+ price,

So approx Revenue increases by 10%...

So my pick is A
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by JiuJitsuGuy » Sat Sep 18, 2010 2:30 pm
I would agree with those above who said A.

The argument we are trying trying to support with an assumption is: "the management projects that the next quarter's revenues from the sale of gasoline will also increase by approximately 10 percent."

A. This seems like a good option since you are assuming that consumption will not drop. (leave in play)
B. This talks about profits which really isn't what we are talking about, we are talking about revenue. In theory, profit an increase while revenue decreases. This option is not relevent. (Throw out)
C. This is irrelevant because we are trying to strengthen the view that revenues from gasoline will increase, not the revenues other business lines. (throw out)
D. Again, irrelevant because we are talking about the revenue resulting from the cost increase of 10%. Based on the information provided, I believe it is safe to assume that the company will adjust it's prices according to wholesale prices. (throw out)
E. Just like in D, this doesn't matter because prices will be adjusted to a fixed profit above the company's wholesale cost.


What is the OA?
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by neerajkumar1_1 » Sun Sep 19, 2010 2:10 am
OA: A

great job guyz... thanks.. .
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