The Total Amount of Profits of Brandeburgh Bicycle Company (BBC) Must have Increased Dramatically Over the last 5 Years.

Question: The total amount of profits of Brandeburgh Bicycle Company (BBC) must have increased dramatically over the last 5 years. After BBC developed a light and strong new material for its bicycles, total sales increased to twice what they were 5 years ago. Nevertheless, sales of certain types of bicycles, for which the new material is not used due to its high cost, have remained constant or, as is the case with bicycles for children, have decreased. Four years ago, sales of children’s bicycles constituted 30 percent of the total bicycle sales of BBC, and now they constitute barely 20 percent of all BBC’s sales.

Which of the following must be assumed in order for the assertion that the total amount of profits of BBC has increased dramatically over the last several years to be true?

1. Increased sales always result in increased profits.
2. BBC bicycles are not significantly more expensive than 5 years ago.
3. Over the last 5 years, total sales of BBC racing bicycles did not decrease by more than 70 percent.
4. Over the last 5 years, the average amount of profit gained by BBC per bicycle sale has decreased by less than 50 percent.
5. The proportion of the bicycle market occupied by bicycles of BBC has not decreased over the last 5 years.

The Total Amount of Profits of Brandeburgh Bicycle Company (BBC) Must have Increased Dramatically Over the last 5 Years. – is a GMAT Critical reasoning question. This particular GMAT Critical Reasoning topic has been taken from the book ‘GMAT Official Guide Verbal Review, 2015’. This is a assume the assertion type of question. In this particular topic, candidates need to choose the option that best suits the passage. GMAT critical reasoning tests the logical and analytical skills of the candidates. This topic requires candidates to find the strengths and weaknesses of the argument, or find the logical flaw in the argument. The GMAT CR section contains 10 -13 GMAT critical reasoning questions out of 36 GMAT verbal questions.

Answer: C
Explanation:
This is a GMAT critical reasoning question. An assumption is an implied hypothesis. So we are looking for something that is implied in the argument. In case it is wrong or maybe disable the argument.

The statement states - The total amount of profits of Brandeburgh Bicycle Company (BBC) must have increased dramatically over the last 5 years. After BBC developed a light and strong new material for its bicycles, total sales increased to twice what they were 5 years ago. Nevertheless, sales of certain types of bicycles, for which the new material is not used due to its high cost, have remained constant or, as is the case with bicycles for children, have decreased. Four years ago, sales of children’s bicycles constituted 30 percent of the total bicycle sales of BBC, and now they constitute barely 20 percent of all BBC’s sales.

Which of the following must be assumed in order for the assertion that the total amount of profits of BBC has increased dramatically over the last several years to be true?
Key formula #1: profit margin = total profit / sales
Key formula #2: total profit = profit margin x sales

1. Sales increases but profit margin decrease -> total profit decreases. (see formulas above)
2. Wrong. Does not help. Why type of bicycle does not increase the price? The one used new material or the one not used new material? You don’t know ==> What if bicycles that are used material do not increase prices (but their costs are high) Total profit may decrease.
3. Wrong. The stimulus clearly says total sales increase twice, so the option is meaningless.
4. Correct. As stated above. If the profit margin reduces by less than 50%, but total sale increases 200% -> total profit increases for sure.
5. Wrong. TEMPTING. Although the market share of BBC has not decreased, total profit may decrease if the profit margin reduces. (See formulas above)

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