Self-paced
In 1987 Fabrico, a clothing manufacturer, sold to its customers a total of 2.3 million dollars worth of clothing, a 17 percent increase over 1986 sales. ██ ███████ █████ ████████ ███████ ██████ ███ ██ ███ ████████ ██████████ ██████ ███████ ██████ ███ ███ ████████ ██ ███ █████ ███████
The Discrepancy
At first glance, Fabrico's situation seems contradictory. The company's sales revenue went up by 17 percent in 1987 compared to 1986. That sounds like good news. But then in January 1988, Fabrico closed one of its factories, and the reason given was "reduced demand" for its products. How can demand be reduced if the company brought in more money than the year before?
To resolve this, we should recognize that a 17 percent increase in total dollar sales doesn't necessarily mean that demand for Fabrico's products was strong throughout 1987. There are many reasons why revenue could climb while the actual volume of products customers want to buy declines. There could also have been a shift during 1987 itself: perhaps demand was strong early in the year but dropped off significantly toward the end, so that even though the annual total looked healthy, the trend heading into 1988 was worrying enough to justify closing a factory.
More broadly, we're looking for any piece of information that shows how Fabrico's 17 percent revenue increase is compatible with reduced demand for its products.
11.
Which one of the following, ██ ████ █████ █████ ███████████ ████ ██ █ ██████████ ██ ███ ████████ ███████████ █████ ███████ ███ █████ ███████ ███ ███ ██████ ███████ ███ ███████ █ ████████
a
The total worldwide ██████ █████ ██ ████████ █████ ██ █████████████ ██ █████████ █████████ ██ █ ███████ ████ █████ ██ █████
This tells us that the worldwide clothing market grew by 5 percent while Fabrico's sales grew by 17 percent. If anything, this makes the discrepancy harder to resolve. Fabrico outpaced the industry, which seems to suggest strong demand for its products, not reduced demand.
b
Fabrico’s employees dropped ███████ ███████ ███ █ ██ ███████ ████████ ██ ████████████ ████████ ███ █ ██ ███████ ████████ ██ ██████ ██████
This is about Fabrico's labor costs, not about demand for its products. Whether employees dropped their demands for higher wages and benefits doesn't tell us anything about how many customers wanted to buy Fabrico's clothing. We need something that explains how dollar sales can go up while demand goes down.
c
Because of escalating █████ ███ ███ ██████████ ██████ ███████ ██ ███████ ███ ███ ████████ ████ ██ ███████ ██ ███████ ██████ ████ ████ ████ ██ █████
This provides a potential explanation. If Fabrico's prices increased by an average of 42 percent, but total dollar sales only increased by 17 percent, then Fabrico must have sold fewer units of clothing in 1987 than in 1986. (C) shows that the revenue increase was driven by higher prices, not an increase in demand for Fabrico's products. In fact, there was a decline in demand (measured by items sold), despite the increased revenue. With fewer units being sold, it makes sense that Fabrico wouldn't need as much factory capacity.
d
Fabrico introduced several ███ ██████ ██ ████████ ████ ████ █████████ ███████ ██ ███████ ███████ ███ ████ ████ ████ █████
This makes the discrepancy worse, not better. If Fabrico introduced popular new styles that sold very well, that's even more reason to think demand was strong.
e
Fabrico spent less ██ ███████ ████████████ ████ ██ ███ ██ █████ ████ ██ █████ ███ █████ ████████ ███ ███ ██████████
This tells us Fabrico spent less on capital improvements in 1987 than in 1986. But spending less on improvements doesn't explain how dollar sales can rise while demand falls. You might think that because Fabrico added new capacity in 1986, it had excess capacity heading into 1987, and that's why it closed a factory. But even so, (E) doesn't address the core question of how Fabrico's demand could actually go down the increase in sales revenue.