Question

An electronics company’s two divisions showed consistent performance over the last two years. In each year, the audiovisual department accounted for roughly 30 percent of the company’s sales and 70 percent of the company’s profits over the period, while the home appliance division accounted for the balance. Which of the following statements regarding the last two years can be inferred from the statement above?

• A. The audiovisual market is growing faster than is the home appliance division.
• B. The home appliance division has realized lower profits per dollar of sales than has the audiovisual division.
• C. Total dollar sales for each division has remained roughly constant for the last five years.
• D. The company has devoted more money to research and development efforts in the audiovisual division than in the home appliance division.
• E. To maximize profitability, the company should focus its resources on the home appliance division.

Hint:

When analyzing profit distributions, consider the relationship between sales and profit to infer profitability per unit of sales.

Answer 1

The Correct Option is B

Step 1: Understand the information provided.
The statement tells us that the audiovisual department accounts for 30 percent of sales and 70 percent of profits. The home appliance division must then account for 70 percent of sales and 30 percent of profits. This suggests that the home appliance division generates lower profits per dollar of sales than the audiovisual division. Step 2: Analyze each option.
- (A) The statement does not provide any information on the growth rate of the audiovisual market compared to the home appliance market, so this cannot be inferred.
- (B) This option is directly supported by the information in the question. The home appliance division has a lower profit share despite higher sales, implying lower profits per dollar of sales. This is the correct conclusion.
- (C) The statement doesn’t mention anything about sales consistency over the past five years, so this cannot be inferred.
- (D) The statement doesn’t mention the company’s research and development expenditures, so this cannot be inferred.
- (E) The statement doesn’t make a recommendation about where to focus resources to maximize profitability.
Conclusion:
Thus, (B) is the correct answer, as it is directly supported by the information provided.