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by karmayogi » Thu Dec 25, 2008 3:42 am
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.

OA C
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by karmayogi » Thu Dec 25, 2008 3:50 am
I got it wrong; I selected B.

Reason: The cost of item X has two parts: fixed and variable. If one part is fixed then it should not vary. With this logic, I thought 2 statement is sufficient. Suppose value of variable component was x before jan then the percentage change
= (((5x + 0.95x) - (5x+x))/(5x+x))*100
= 5/6%

Is it possible that fixed component varies? and if yes then what the difference between fixed component and variable component?
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by cramya » Thu Dec 25, 2008 4:00 am
https://www.beatthegmat.com/fixed-cost-a ... 17188.html

Stuart has provided an explanation. I understand your interpretation of word fixed (in strict sense something that stays constant) but in the gmat ds world unless we are given fixed cost is the same we cannot assume it is.
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by scoobydooby » Thu Dec 25, 2008 4:03 am
fixed means something that does not vary with quantity. Variable costs vary with quantity.
TC: F+VC, VC=Vq (Variable part increases when quantity increases, decreases when quantity decreases)

F and V can be increased, if F increases by 13%, new Fixed cost= 1.13F, new VC=0.95VC, with statement 1 we still have 2 variables F and VC

statement 2: relation between F and VC.no information on change
combining, all VCs expressed as F, the % change can be found
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by cramya » Thu Dec 25, 2008 4:06 am
fixed means something that does not vary with quantity.
Like I said above for this problem we cannot assume it is based on a definition of term "fixed". It leads us in to a DS trap.

Therefore the answer is not [spoiler]B)[/spoiler] but [spoiler]C)[/spoiler]

Hope this helps!
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by karmayogi » Thu Dec 25, 2008 4:26 am
scoobydooby wrote:fixed means something that does not vary with quantity. Variable costs vary with quantity.
TC: F+VC, VC=Vq (Variable part increases when quantity increases, decreases when quantity decreases)

F and V can be increased, if F increases by 13%, new Fixed cost= 1.13F, new VC=0.95VC, with statement 1 we still have 2 variables F and VC

statement 2: relation between F and VC.no information on change
combining, all VCs expressed as F, the % change can be found
Your definitions of fixed and variable components are absolutely correct. But with your expressions, TC: F+VC, you have added one more variable C, and you are assuming C is constant. And fortunately C is indeed constant, equal to 1. How?

Problem talks about "total cost of producing item X." That means, through out it's talking about single item.

Now things are falling into place. Thanks cramya and scoobydooby.
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