GMAT Practice Test: Full-Length Mock Exam for GMAT Preparation
Total Questions: 64
Total Test Time: 2 Hours 15 Minutes
Ready to put your GMAT skills to the test? This practice test is designed to simulate the challenges and pace of the GMAT examination, giving you an opportunity to experience realistic question types under exam-like conditions. Use this test to measure your progress, pinpoint areas that need additional focus, and strengthen your confidence as you move closer to your target score.
Section 1: Quantitative Reasoning
Questions: 21
Time: 45 Minutes
Instructions: This section assesses your ability to solve quantitative problems and apply mathematical reasoning. Read each question carefully and select the best answer from the options provided.
1. If n is the smallest positive integer such that 18n is a multiple of 240 and 75n is a perfect square, what is the sum of the distinct prime factors of n?
Answer: A. 10
Brief Explanation: Since 18 = 2×3² and 240 = 2⁴×3×5, n must supply at least 2³×5. Also, 75n = 3×5²×n must be a square. The smallest n is 2⁴×3×5, whose distinct prime factors are 2, 3, and 5. Their sum is 10.
2. A portfolio contains shares of two funds, X and Y. The average return of the entire portfolio was 8.4%. If fund X returned 12% and fund Y returned 6%, what fraction of the portfolio was invested in fund X?
Answer: B. ²⁄₅
Brief Explanation: Let x be the fraction invested in X. Then 12x + 6(1 - x) = 8.4, so 6x = 2.4 and x = 0.4 = ²⁄₅.
3. Machine A can complete a job in 10 hours, and Machine B can complete the same job in 15 hours. They work together for 3 hours. Then Machine A breaks down, and Machine B continues alone. How many additional hours will Machine B need to finish the job?
Answer: D. 7.5
Brief Explanation: Together, the machines complete ¹⁄₁₀ + ¹⁄₁₅ = ¹⁄₆ of the job per hour. In 3 hours, they complete ¹⁄₂ of the job. The remaining ¹⁄₂ takes Machine B 7.5 hours.
4. If x is not equal to 0 and x + 1∕x = 5, what is the value of x² + 1∕x²?
Answer: B. 23
Brief Explanation: Square both sides: (x + 1∕x)² = x² + 2 + 1∕x² = 25. Therefore x² + 1∕x² = 23.
5. For how many integer values of k is -3 < (2k - 5)∕3 < 7?
Answer: B. 14
Brief Explanation: Multiply by 3: -9 < 2k - 5 < 21. Add 5: -4 < 2k < 26. Divide by 2: -2 < k < 13. The integers are -1 through 12, for 14 values.
6. A store increases the price of an item by 30% and later decreases the new price by 10%. The final price is $17 greater than the original price. What was the original price?
Answer: C. $100
Brief Explanation: The net multiplier is 1.30×0.90 = 1.17. If 0.17P = 17, then P = 100.
7. If 2ᵃ⁺¹ × 3ᵇ⁻² = 216, where a and b are integers and b > 2, what is a + b?
Answer: C. 7
Brief Explanation: Since 216 = 2³×3³, a + 1 = 3 and b - 2 = 3. Thus a = 2 and b = 5, so a + b = 7.
8. A chemist has 30 liters of a 20% acid solution. How many liters of a 50% acid solution must be added to make a 35% acid solution?
Answer: C. 30
Brief Explanation: Let x be the liters added. Then (6 + 0.50x)∕(30 + x) = 0.35. Solving gives x = 30.
9. A box contains 5 red, 4 blue, and 3 green tokens. If 2 tokens are selected at random without replacement, what is the probability that the two selected tokens have the same color?
Answer: C. ¹⁹⁄₆₆
Brief Explanation: Favorable pairs are C(5,2) + C(4,2) + C(3,2) = 19. Total pairs are C(12,2) = 66. The probability is ¹⁹⁄₆₆.
10. In a sequence, a₁ = 1, and each term after the first is 3 more than twice the preceding term. What is a₄?
Answer: C. 29
Brief Explanation: a₂ = 2(1) + 3 = 5, a₃ = 2(5) + 3 = 13, and a₄ = 2(13) + 3 = 29.
11. In a group of 60 applicants, 38 have quantitative experience, 27 have coding experience, and 10 have neither. How many applicants have exactly one of the two types of experience?
Answer: C. 35
Brief Explanation: Since 10 have neither, 50 have at least one. Both = 38 + 27 - 50 = 15. Exactly one = 50 - 15 = 35.
12. What is the sum of all real solutions to |x - 4| + |x + 2| = 10?
Answer: C. 2
Brief Explanation: For x ≥ 4, x = 6. For x ≤ -2, x = -4. Between -2 and 4, the left side is always 6. Sum = 6 + (-4) = 2.
13. If f(t) = t² - 3t + 1, what is f(x + 2) - f(x)?
Answer: C. 4x - 2
Brief Explanation: f(x + 2) = x² + x - 1. Subtract f(x) = x² - 3x + 1 to get 4x - 2.
14. For how many positive integers m are both m∕3 and 60∕m integers?
Answer: C. 6
Brief Explanation: m must be a multiple of 3 and a positive divisor of 60. The values are 3, 6, 12, 15, 30, and 60, for 6 values.
15. If p and q are the two roots of t² - 7t + 10 = 0, what is 1∕p + 1∕q?
Answer: B. ⁷⁄₁₀
Brief Explanation: For the quadratic, p + q = 7 and pq = 10. Therefore 1∕p + 1∕q = (p + q)∕pq = ⁷⁄₁₀.
16. A car travels 120 miles at 40 miles per hour and then 120 miles at 60 miles per hour. What is the car's average speed for the entire trip?
Answer: B. 48 mph
Brief Explanation: Total distance is 240 miles. Total time is 120∕40 + 120∕60 = 3 + 2 = 5 hours. Average speed = 240∕5 = 48 mph.
17. Five integers are arranged in nondecreasing order. Their median is 12, their average is 14, and their range is 16. If the least integer is 6 and the greatest integer is 22, how many possible ordered lists of the five integers are there?
Answer: C. 5
Brief Explanation: The list has the form 6, a, 12, b, 22. The sum is 70, so a + b = 30. With 6 ≤ a ≤ 12 and 12 ≤ b ≤ 22, a can be 8, 9, 10, 11, or 12.
18. When the positive integer n is divided by 5, the remainder is 3. When n is divided by 7, the remainder is 4. What is the remainder when n is divided by 35?
Answer: C. 18
Brief Explanation: Numbers congruent to 3 mod 5 include 3, 8, 13, 18, 23, ... Of these, 18 leaves remainder 4 when divided by 7. Thus n is congruent to 18 mod 35.
19. A tank currently contains 40 gallons of water and has a capacity of 180 gallons. Water flows into the tank at 12 gallons per minute and out of the tank at 5 gallons per minute. In how many minutes will the tank become full?
Answer: C. 20
Brief Explanation: The net filling rate is 12 - 5 = 7 gallons per minute. The tank needs 180 - 40 = 140 more gallons. Time = 140∕7 = 20 minutes.
20. A company sells x units of a product at a price of (100 - 2x) dollars per unit. The total cost of producing x units is 20x + 400 dollars. For what value of x is profit maximized?
Answer: C. 20
Brief Explanation: Profit is x(100 - 2x) - (20x + 400) = -2x² + 80x - 400. The vertex occurs at x = -80∕(2×-2) = 20.
21. How many three-digit positive integers have an odd hundreds digit and a sum of digits equal to 9?
Answer: C. 25
Brief Explanation: The hundreds digit can be 1, 3, 5, 7, or 9. The counts for the remaining two digits summing to 9 - h are 9, 7, 5, 3, and 1. Total = 25.
Section 2: Verbal Reasoning
Questions: 23
Time: 45 Minutes
Instructions: This section evaluates your reading comprehension, critical reasoning, and ability to analyze written information. Choose the answer that best addresses each question.
Reading Comprehension Passage I - Platform Competition
In many technology markets, firms initially compete by adding features that make their products more useful to individual users. Once a product becomes sufficiently useful, however, a different source of advantage can emerge: the product becomes valuable because other people use it. This network effect is often described as self-reinforcing, but the description can mislead. A large network can attract users, yet it can also make coordination failures more visible. When a platform changes a standard interface, for example, users may delay adoption until complementary firms update their tools, while those firms may delay updates until enough users adopt the change.
Some analysts argue that network effects inevitably lead to winner-take-all outcomes. That conclusion is too strong. The tendency toward concentration is real when users cannot easily belong to multiple networks or transfer their data. But when interoperability is high, or when users can participate in several networks at low cost, the advantage of size can diminish. Moreover, specialized networks sometimes survive alongside larger general-purpose ones because they provide governance, trust, or domain-specific functionality that broad networks cannot efficiently supply.
The most successful platform strategies therefore do not merely pursue scale. They manage the transition from product utility to ecosystem utility. A firm may deliberately slow the introduction of profitable features if those features would impose adjustment costs on partners. Similarly, it may subsidize developers or create migration tools that reduce the risk of coordinated delay. The paradox is that a platform may preserve its long-run power not by exploiting every immediate advantage of size, but by making participation less costly for those whose cooperation sustains that size.
1. The primary purpose of the passage is to
Answer: B
Brief Explanation: The passage qualifies simple claims about network effects and argues that successful platforms manage coordination among ecosystem participants, not merely scale.
2. According to the passage, which of the following most weakens the tendency of network effects to create a single dominant firm?
Answer: C
Brief Explanation: The second paragraph explicitly says concentration is less likely when interoperability is high or users can participate in multiple networks at low cost.
3. The author mentions a platform changing a standard interface primarily to illustrate
Answer: A
Brief Explanation: The interface example illustrates coordinated delay among users and partners, showing that scale can make coordination failures visible.
4. Which of the following would the author most likely recommend to a large platform planning a major technical change?
Answer: C
Brief Explanation: The final paragraph endorses migration tools, developer subsidies, and reduced participation costs during ecosystem transitions.
Reading Comprehension Passage II - Ecological Restoration
Restoration ecologists often distinguish between rebuilding an ecosystem’s original species composition and restoring its functions. The distinction matters because climate shifts can make historical baselines poor guides to future viability. A wetland once dominated by a cold-tolerant sedge, for instance, may no longer support that species reliably, even if hydrology is restored. In such cases, insisting on the old species list may produce a landscape that looks authentic briefly but requires constant intervention.
Functional restoration is not an invitation to abandon historical knowledge. Rather, it uses that knowledge to identify the processes that made the former ecosystem resilient: nutrient cycling, seasonal water retention, habitat complexity, and resistance to invasive species. Practitioners may then select species capable of sustaining those processes under projected conditions. Critics worry that this approach gives managers too much discretion, allowing them to justify novel ecosystems that serve human preferences more than ecological integrity.
That worry is reasonable, but it does not settle the matter. Historical fidelity and functional resilience are not always in conflict, and when they are, a transparent decision framework can limit arbitrary choices. Such a framework would ask which historical functions are essential, which species can plausibly support them, and what monitoring would reveal failure. In a changing climate, the question is not whether restoration should remember the past, but how it should use the past without being governed by it.
5. The passage suggests that historical baselines can be problematic in restoration because
Answer: C
Brief Explanation: The passage states that climate shifts can make historical baselines poor guides because some formerly viable species may no longer be reliably supported.
6. Which of the following best describes the author’s attitude toward functional restoration?
Answer: B
Brief Explanation: The author supports functional restoration while acknowledging reasonable concerns and emphasizing transparent decision frameworks.
7. The phrase “looks authentic briefly but requires constant intervention” serves to emphasize that
Answer: A
Brief Explanation: The point is that recreating historical appearance may fail if the conditions needed for durability no longer exist.
8. Which of the following is most consistent with the decision framework advocated in the passage?
Answer: C
Brief Explanation: The final paragraph lays out exactly these criteria: functions, plausible species, and monitoring for failure.
Reading Comprehension Passage III - Wages and Manufacturing Districts
Economic historians have long debated why some manufacturing districts maintained high wages despite intense competition. One explanation emphasizes productivity: firms in such districts adopted superior machinery or work organization, allowing them to pay workers more without sacrificing profits. Another explanation stresses labor institutions: craft unions, apprenticeship rules, and informal norms limited the supply of skilled labor and protected wage premiums. Each account captures part of the evidence, but neither is sufficient by itself.
Districts with high wages often attracted entrepreneurs precisely because skilled workers were concentrated there. Higher pay was not merely a cost; it was a signal that the local labor market contained scarce expertise. At the same time, institutions that protected wages could become burdensome if they prevented new techniques from diffusing. The most durable districts tended to combine wage protection with mechanisms for skill renewal, such as technical schools or employer associations that standardized training.
This interaction helps explain a pattern that otherwise appears contradictory: some districts with strong labor institutions declined, whereas others with similar institutions prospered. Institutions did not have a fixed economic meaning. Their effects depended on whether they preserved skills while allowing production methods to adapt. Thus the question is not whether high wages resulted from productivity or bargaining power, but how productivity and bargaining power shaped each other over time.
9. The author’s main claim is that
Answer: C
Brief Explanation: The passage argues that productivity and bargaining power shaped each other, and neither account alone is sufficient.
10. The passage implies that high wages could attract entrepreneurs because they
Answer: B
Brief Explanation: The second paragraph says higher pay signaled a local labor market with scarce expertise.
11. Which of the following would best support the author’s explanation?
Answer: C
Brief Explanation: This directly supports the interaction claim: wage protection combined with mechanisms for skill renewal and adaptation.
12. In the context of the passage, “Institutions did not have a fixed economic meaning” most nearly means that
Answer: B
Brief Explanation: Similar institutions could accompany decline or prosperity depending on whether they preserved skills while allowing adaptation.
Critical Reasoning Questions
13. A city introduced a congestion fee for cars entering its central business district. Six months later, average vehicle speed in the district had increased by 12 percent. City officials concluded that the fee reduced congestion. Which of the following, if true, most strengthens the officials’ conclusion?
Answer: B
Brief Explanation: A modal shift to buses is a plausible mechanism by which the fee would reduce car traffic and congestion.
14. A manufacturer found that workers trained with virtual-reality simulations made fewer assembly errors than workers trained only with manuals. The manufacturer concluded that replacing manuals with simulations would reduce errors in all assembly departments. Which of the following is an assumption required by the conclusion?
Answer: B
Brief Explanation: The evidence compares two groups; the conclusion assumes the lower error rate was not due to a preexisting experience difference.
15. A study found that companies with highly detailed strategic plans grew faster than companies with brief strategic plans. A consultant argues that firms can increase growth by making their strategic plans more detailed. Which of the following most weakens the consultant’s argument?
Answer: B
Brief Explanation: This suggests reverse causation: growth opportunities may cause detailed planning, rather than detail causing growth.
16. A hospital reduced the average length of patient stays after introducing an early-discharge program. However, the rate of readmission within 30 days did not increase. The hospital concludes that the program reduced costs without worsening patient outcomes. Which of the following would be most useful to evaluate the conclusion?
Answer: B
Brief Explanation: Costs and outcomes could be shifted to outpatient care; this information tests whether the program truly reduced costs without worsening outcomes.
17. A country’s farms produced 8 percent more grain this year than last year, yet domestic grain prices rose sharply. Which of the following, if true, best resolves the apparent discrepancy?
Answer: A
Brief Explanation: A fall in imports can reduce total supply available domestically despite higher domestic production, allowing prices to rise.
18. A software firm claims that its new encryption tool is more secure because no successful cyberattack has been reported by any of its clients in the year since launch. Which of the following identifies the main flaw in the firm’s reasoning?
Answer: A
Brief Explanation: The argument relies on absence of reports as proof of security, ignoring underreporting, undetected attacks, or low attack exposure.
19. An art museum found that visitors who joined guided tours donated more money on average than visitors who viewed exhibits independently. The museum plans to increase donations by requiring all visitors to join guided tours. Which of the following, if true, most seriously undermines the plan?
Answer: B
Brief Explanation: Selection bias undermines the causal claim: guided tours may not cause donations; donors may select tours.
20. Researchers discovered that a certain plant grows taller when exposed to intermittent wind than when grown in still air. They hypothesize that mild mechanical stress triggers growth hormones. Which of the following most directly tests the hypothesis?
Answer: B
Brief Explanation: The hypothesis specifies a hormone mechanism; measuring hormone levels under the relevant conditions directly tests it.
21. A bookstore owner argues: “When we extended our opening hours from 8 p.m. to 10 p.m., weekly revenue rose by 15 percent. Therefore, extending hours to midnight will increase revenue further.” Which of the following is the strongest reason to be cautious about this argument?
Answer: A
Brief Explanation: The argument assumes a linear extension of the previous effect; A shows diminishing demand may make the next extension less effective.
22. A policy analyst argues that because neighborhoods with more public parks have lower childhood obesity rates, building parks in neighborhoods with few parks will reduce childhood obesity. Which of the following, if true, most strengthens the argument?
Answer: B
Brief Explanation: This supplies causal evidence linking new parks to increased activity, a mechanism that can reduce obesity.
23. A company replaced annual performance reviews with monthly feedback meetings. Employee survey scores on “clarity of expectations” improved, but voluntary turnover also increased. Which of the following best explains both findings?
Answer: A
Brief Explanation: This explains both the improvement in clarity and the rise in turnover through a single plausible mechanism.
Section 3: Data Insights
Questions: 20
Time: 45 Minutes
Instructions: This section measures your ability to interpret, analyze, and draw conclusions from data presented in various formats. Review the information carefully and select the most appropriate answer for each question.
Part A — Data Sufficiency
Directions: For each Data Sufficiency question, determine whether the data given in the two statements are sufficient to answer the question. Select A, B, C, D, or E.
1. Revenue Share
A software company earned revenue from subscriptions and consulting. Was consulting revenue greater than subscription revenue?
(1) Consulting revenue was 40% of total revenue.
(2) Subscription revenue was $1.2 million more than consulting revenue.
Answer: D
Explanation: Statement (1) says consulting is 40% of total revenue, so subscriptions must be 60%; consulting is not greater. Statement (2) says subscriptions exceed consulting by $1.2 million; consulting is not greater. Each statement alone answers the yes/no question.
2. Median Order Value
A retailer recorded five order values: a, b, c, d, and e. What was the median order value?
(1) The average of the five values was $84, and the range was $60.
(2) When the values are arranged in increasing order, the third value is $80.
Answer: B
Explanation: The median of five values is the third value after sorting. Statement (1) gives mean and range but does not determine the median. Statement (2) directly identifies the third sorted value as $80.
3. Vendor Qualification
A vendor qualifies for preferred status only if its on-time delivery rate is at least 94% and its defect rate is at most 2.5%. Did Vendor X qualify?
(1) Vendor X shipped 480 of 500 orders on time.
(2) Vendor X had 14 defective orders among 600 total orders.
Answer: C
Explanation: Statement (1) gives on-time rate 480/500 = 96%, but gives no defect rate. Statement (2) gives defect rate 14/600 ≈ 2.33%, but gives no delivery rate. Together, both requirements are met, so Vendor X qualified.
4. Break-Even Attendance
For a training event, the organizer charges the same ticket price to each attendee. Will total ticket revenue cover the fixed venue cost of $9,000?
(1) The ticket price is $150.
(2) At least 55 people will attend.
Answer: E
Explanation: Statement (1) alone lacks attendance. Statement (2) alone lacks price. Together, revenue is at least 55 × $150 = $8,250, but attendance could be 55, 60, or more. Thus the statements together do not determine a definite yes/no answer.
Part B - Table Analysis
Directions: Analyze the sortable-style table. For each statement, choose Yes if the statement is supported by the table; otherwise choose No. Each numbered item is one question.
5. Regional Campaign Performance
| Region | Leads | Conversion Rate | Average Deal ($) | Ad Spend ($) |
|---|---|---|---|---|
| North | 1200 | 8% | 3,500 | 280,000 |
| South | 900 | 11% | 2,800 | 210,000 |
| East | 1500 | 6% | 4,200 | 300,000 |
| West | 700 | 14% | 3,000 | 190,000 |
| Central | 1100 | 9% | 3,300 | 240,000 |
Assume closed deals = Leads × Conversion Rate and revenue = closed deals × Average Deal. Mark each statement Yes or No.
Answers: Statment 1 = Yes; Statment 2 = Yes; Statment 3 = No
Explanation: Revenues are North $336,000; South $277,200; East $378,000; West $294,000; Central $326,700, so East is highest. Cost per closed deal is lowest for West. South and Central each have 99 closed deals, so South does not have more.
6. Inventory Snapshot
| Product | Units Sold | Units Returned | Starting Inventory | Ending Inventory |
|---|---|---|---|---|
| A | 840 | 21 | 1000 | 145 |
| B | 620 | 31 | 800 | 211 |
| C | 950 | 19 | 1200 | 269 |
| D | 500 | 25 | 700 | 225 |
| E | 760 | 38 | 950 | 228 |
Return rate = Units Returned ÷ Units Sold. Net units removed from inventory = Units Sold - Units Returned. Mark each statement Yes or No.
Answers: Statment 1 = Yes; Statment 2 = No; Statment 3 = No
Explanation: Return rates are A 2.5%, B 5.0%, C 2.0%, D 5.0%, and E 5.0%, so C is lowest. Product A did not have the greatest replenishment. D and E have identical return rates.
7. Subscription Cohorts
| Cohort | New Subscribers | Churned in Month 1 | Churned in Month 2 | Monthly Fee ($) |
|---|---|---|---|---|
| January | 2400 | 180 | 120 | 18 |
| February | 1800 | 90 | 150 | 22 |
| March | 2100 | 210 | 105 | 20 |
| April | 1600 | 80 | 96 | 25 |
| May | 2000 | 160 | 80 | 21 |
Two-month retained subscribers = New Subscribers - Churned in Month 1 - Churned in Month 2. Mark each statement Yes or No.
Answers: Statment 1 = Yes; Statment 2 = Yes; Statment 3 = Yes
Explanation: April has the highest retention percentage, January has the largest retained count, and May's retained-fee revenue exceeds March's.
8. Delivery Routes
| Route | Distance (km) | Packages | Fuel Used (L) | Late Deliveries |
|---|---|---|---|---|
| R1 | 120 | 180 | 18 | 6 |
| R2 | 95 | 140 | 15 | 7 |
| R3 | 150 | 210 | 21 | 5 |
| R4 | 80 | 110 | 12 | 2 |
| R5 | 135 | 190 | 20 | 8 |
Fuel efficiency = Distance ÷ Fuel Used. Late rate = Late Deliveries ÷ Packages. Mark each statement Yes or No.
Answers: Statment 1 = Yes; Statment 2 = Yes; Statment 3 = Yes
Explanation: Route R3 has the highest fuel efficiency, Route R4 has the lowest late-delivery rate, and R2 delivers fewer packages per kilometer than R1.
Part C - Graphics Interpretation
Each graphics item uses data presented visually in text/table form. Choose the option that best completes the interpretation.
9. Market Share Trend
The line chart summarized above shows market share by quarter. From Q1 to Q4, Brand A gained ____ percentage points, while the combined share of Brands B and C changed by ____ percentage points.
Answer: A
Explanation: Brand A increased from 32% to 39%, a gain of 7 percentage points. Brands B and C combined fell from 68% to 61%, a change of -7 percentage points.
10. Customer Acquisition Funnel
The funnel shows the counts at each stage. The conversion rate from trial sign-ups to paid customers is closest to ____; the conversion rate from demos to paid customers is closest to ____.
Answer: B
Explanation: Paid customers divided by trial sign-ups is 660/5,500 = 12%. Paid customers divided by demos is 660/1,650 = 40%.
11. Expense Breakdown
A pie chart uses the shares above. If annual expenses total $3.6 million, the amount spent on Technology is ____ and the amount spent on Rent exceeds Marketing by ____.
Answer: B
Explanation: Technology is 14% of $3.6 million = $504,000. Rent exceeds Marketing by 6 percentage points of $3.6 million, or $216,000.
12. Productivity Scatterplot
A scatterplot of training hours versus output per employee is summarized above. The relationship is best described as ____; the marginal output gain per training hour from 12 to 18 hours is ____.
Answer: B
Explanation: Output rises as training hours rise, but gains generally become smaller at higher training levels. From 12 to 18 hours, output rises from 82 to 88, a gain of 6 over 6 hours, or 1 per hour.
Part D- Two-Part Analysis
For each question, choose one option in each of the two columns. The same option may be correct in both columns.
13. Supplier Contract
A company needs at least 10,000 units per month. Supplier P charges $4.80 per unit plus a fixed monthly fee of $8,000. Supplier Q charges $5.35 per unit with no fixed fee. Select the lowest monthly quantity at which Supplier P costs no more than Supplier Q, and select the total monthly cost at that quantity.
| Option | Quantity threshold | Cost at threshold |
|---|---|---|
| A | 12,000 units | $64,200 |
| B | 14,546 units | $77,821 |
| C | 14,545 units | $77,816 |
| D | 16,000 units | $84,800 |
| E | 18,000 units | $94,400 |
14. Pricing Experiment
A product currently sells for $40 with variable cost $24. Management considers a price change. Demand is expected to be 9,000 units if price is $38, 8,000 units if price is $40, and 7,200 units if price is $42. Select the price that maximizes total contribution margin and the corresponding contribution margin.
| Option | Price | Contribution Margin |
|---|---|---|
| A | $38 | $126,000 |
| B | $40 | $128,000 |
| C | $42 | $129,600 |
| D | $42 | $302,400 |
| E | $38 | $342,000 |
15. Hiring Plan
A service center must add enough analysts so that total monthly case capacity is at least 5,600 cases. Each full-time analyst handles 160 cases per month and costs $6,200. Each contractor handles 100 cases per month and costs $4,100. The center currently has 25 full-time analysts and can add only contractors. Select the minimum number of contractors needed and the total added monthly cost.
| Option | Contractors needed | Added cost |
|---|---|---|
| A | 12 | $49,200 |
| B | 14 | $57,400 |
| C | 16 | $65,600 |
| D | 18 | $73,800 |
| E | 20 | $82,000 |
16. Currency Exposure
A firm expects to receive €800,000 in three months. It can lock in an exchange rate of $1.09 per euro today. If it does not hedge, the future spot rate could be $1.05, $1.10, or $1.13 per euro. Select the unhedged spot rate at which hedging gives the greatest dollar benefit and select that benefit.
| Option | Spot rate | Dollar benefit of hedging |
|---|---|---|
| A | $1.05 | $32,000 |
| B | $1.10 | $8,000 |
| C | $1.13 | -$32,000 |
| D | $1.05 | $40,000 |
| E | $1.09 | $0 |
Part E - Multi-Source Reasoning
Use information from multiple tabs/sources to answer each question.
Sources for Questions 17-20: Expansion DecisionTable 1 - Market Forecast
| City | Projected Annual Demand | Expected Market Growth | Average Selling Price |
|---|---|---|---|
| Arden | 48,000 units | 6% | $42 |
| Bexley | 40,000 units | 9% | $45 |
| Canton | 55,000 units | 4% | $39 |
Table 2 - Cost and Capacity
| City | Fixed Annual Cost | Variable Cost per Unit | Maximum Capacity |
|---|---|---|---|
| Arden | $720,000 | $24 | 50,000 units |
| Bexley | $680,000 | $28 | 42,000 units |
| Canton | $760,000 | $23 | 52,000 units |
Table 3 - Risk Notes
| City | Regulatory Note | Logistics Note |
|---|---|---|
| Arden | No additional permit required. | Main warehouse is 120 km away. |
| Bexley | Permit required if annual output exceeds 41,000 units. | Main warehouse is 90 km away. |
| Canton | Local tax credit applies only if at least 50,000 units are produced. | Main warehouse is 160 km away. |
For profit calculations, use projected annual demand limited by maximum capacity. Profit = (selling price - variable cost) × units sold - fixed annual cost. Ignore tax credits unless specifically mentioned.
17. Expansion Decision - Profit
Based on the forecasts and costs, which city has the highest projected annual profit before considering regulatory or tax-credit effects?
Answer: A. Arden
Explanation: Arden profit = ($42 - $24) × 48,000 - $720,000 = $144,000. Bexley profit = ($45 - $28) × 40,000 - $680,000 = $0. Canton is capacity-limited to 52,000 units, so profit = ($39 - $23) × 52,000 - $760,000 = $72,000. Arden is highest.
18. Expansion Decision - Capacity Constraint
Which city has projected demand that exceeds its maximum capacity, and by how many units?
Answer: C
Explanation: Canton has projected demand of 55,000 units and capacity of 52,000 units, so demand exceeds capacity by 3,000 units. Arden and Bexley both have capacity at or above projected demand.
19. Expansion Decision - Conditional Inference
If Bexley grows by one year at the expected market growth rate before production begins, which statement is best supported?
Answer: B
Explanation: Bexley demand after 9% growth would be 40,000 × 1.09 = 43,600 units. This exceeds the 41,000-unit permit threshold and the 42,000-unit maximum capacity. Even at capacity, Bexley profit would be ($45 - $28) × 42,000 - $680,000 = $34,000, less than Arden’s $144,000.
20. Expansion Decision - Strategic Choice
Management wants a city that satisfies all three conditions: positive projected profit before tax credits, no additional permit requirement at projected output, and main warehouse within 130 km. Which city or cities satisfy all three conditions?
Answer: A
Explanation: Arden has positive projected profit, no additional permit requirement, and is 120 km from the warehouse. Bexley has no projected profit before permit effects, and Canton is 160 km away, so each fails at least one condition.