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Excess inventory, a massive problem for many businesses, has several causes, some of which are unavoidable. Overstocks may accumulate through production overruns or Certain styles and colors prove unpopular. With some products-computers and software, toys, and books-last year's models are difficult to move even at huge discounts. Occasionally the competition introduces a better product. But in many cases the public's buying tastes simply change, leaving a manufacturer or distributor with thousands (or millions) of items that the fickle public no longer wants.
One common way to dispose of this merchandise is to sell it to a liquidator, who buys as cheaply as possible and then resells the merchandise through catalogs, discount stores, and other outlets. However, liquidators may pay less for the merchandise than it cost to make it. Another way to dispose of excess inventory is to dump it. The corporation takes a straight cost write-off on its taxes and hauls the merchandise to a landfill. Although it is hard to believe, there is a sort of convoluted logic to this approach. It is perfectly legal, requires little time or preparation on the company's part, and solves the problem quickly. The drawback is the remote possibility of getting caught by the news media. Dumping perfectly useful products can turn into a public relations nightmare. Children living in poverty are freezing and XYZ Company has just sent 500 new snowsuits to the local dump. Parents of young children are barely getting by and QRS Company dumps 1,000 cases of disposable diapers because they have slight imperfections.
The managers of these companies are not deliberately wasteful; they are simply unaware of all their alternatives. In 1976 the Internal Revenue Service provided a tangible incentive for businesses to contribute their products to charity. The new tax law allowed corporations to deduct the cost of the product donated plus half the difference between cost and fair market selling price, with the proviso that deductions cannot exceed twice cost. Thus, the federal government sanctions- indeed, encourages-an above-cost federal tax deduction for companies that donate inventory to charity.
One common way to dispose of this merchandise is to sell it to a liquidator, who buys as cheaply as possible and then resells the merchandise through catalogs, discount stores, and other outlets. However, liquidators may pay less for the merchandise than it cost to make it. Another way to dispose of excess inventory is to dump it. The corporation takes a straight cost write-off on its taxes and hauls the merchandise to a landfill. Although it is hard to believe, there is a sort of convoluted logic to this approach. It is perfectly legal, requires little time or preparation on the company's part, and solves the problem quickly. The drawback is the remote possibility of getting caught by the news media. Dumping perfectly useful products can turn into a public relations nightmare. Children living in poverty are freezing and XYZ Company has just sent 500 new snowsuits to the local dump. Parents of young children are barely getting by and QRS Company dumps 1,000 cases of disposable diapers because they have slight imperfections.
The managers of these companies are not deliberately wasteful; they are simply unaware of all their alternatives. In 1976 the Internal Revenue Service provided a tangible incentive for businesses to contribute their products to charity. The new tax law allowed corporations to deduct the cost of the product donated plus half the difference between cost and fair market selling price, with the proviso that deductions cannot exceed twice cost. Thus, the federal government sanctions- indeed, encourages-an above-cost federal tax deduction for companies that donate inventory to charity.
Question: 1
The passage is primarily concerned with
The passage is primarily concerned with
Updated On: Oct 13, 2024
- pointing out a problem
- criticizing a particular course of action errors.
- discussing possible responses to a problem
- analyzing the causes of a repeated occurrence
- evaluating two different approaches
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The Correct Option is C
Solution and Explanation
(A) The passage is not pointing out a problem. It is analyzing a phenomenon and the different approaches to deal with it.
(B) The tone of the author is not negative or critical at all.
(C) Correct. The author has highlighted a problem and then discussed the various ways in which it can be dealt with. (D) This is the main idea of the first paragraph, not the entire passage.
(E) The passage goes beyond mere evaluation of two approaches. It also presents a third, more viable alternative and discusses its merits.
Thus, the correct answer is C.
(B) The tone of the author is not negative or critical at all.
(C) Correct. The author has highlighted a problem and then discussed the various ways in which it can be dealt with. (D) This is the main idea of the first paragraph, not the entire passage.
(E) The passage goes beyond mere evaluation of two approaches. It also presents a third, more viable alternative and discusses its merits.
Thus, the correct answer is C.
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Question: 2
It can be inferred from the passage that manufacturers would be most likely to avoid using a liquidator to dispose of excess inventory for which of the following reasons?
It can be inferred from the passage that manufacturers would be most likely to avoid using a liquidator to dispose of excess inventory for which of the following reasons?
Updated On: Oct 13, 2024
- Using a liquidator has questionable legal status.
- Using a liquidator requires costly preparation on the part of the manufacturer.
- Having the products appear in discount outlets can damage the manufacturers' public image
- The liquidator often pays less for the inventory than the manufacturer spent to produce it.
- The manufacturer is allowed no tax write-off for the loss incurred when excess inventory is sold to a liquidator
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The Correct Option is
Solution and Explanation
(A) This information is not available in the passage.
(B) This information is not available in the passage.
(C) This goes beyond the scope of the argument.
(D) Even if this were true, the organizations would stand to make some money on merchandise that is otherwise an absolute waste for them. Also, the passage merely states that the ‘liquidators may pay less’. This does not mean that they often do so.
(E) Correct. It is stated in the passage that organizations get a straight tax write-off for dumping their products. This clearly implies that dumping entails a financial benefit for the organizations. Since both the options (using liquidators and dumping) provide some tangible advantage to the organization, the reason manufacturers will most likely avoid using a liquidator is that using liquidators provide no tax write-offs.
So, the correct answer is E.
(B) This information is not available in the passage.
(C) This goes beyond the scope of the argument.
(D) Even if this were true, the organizations would stand to make some money on merchandise that is otherwise an absolute waste for them. Also, the passage merely states that the ‘liquidators may pay less’. This does not mean that they often do so.
(E) Correct. It is stated in the passage that organizations get a straight tax write-off for dumping their products. This clearly implies that dumping entails a financial benefit for the organizations. Since both the options (using liquidators and dumping) provide some tangible advantage to the organization, the reason manufacturers will most likely avoid using a liquidator is that using liquidators provide no tax write-offs.
So, the correct answer is E.
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Question: 3
The passage provides information that supports which of the following statements?
The passage provides information that supports which of the following statements?
Updated On: Oct 13, 2024
- Excess inventory results most often from insufficient market analysis by the manufacturer.
- Products with slight manufacturing defects may contribute to excessinventory.
- Few manufacturers have taken advantage of the changes in the federal tax laws.
- Manufacturers who dump their excess inventory are often caught and exposed by the news media.
- Most products available in discount stores have come from manufacturers' excess inventory stock.
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The Correct Option is A
Solution and Explanation
(A) Correct. Refer to the following lines from the first paragraph- “Certain styles and colors prove unpopular………. Occasionally the competition introduces a better product……...But in many cases the public's buying tastes simply change…….”. All these statements indicate that excess inventory is largely a product of insufficient market analysis.
(B) The concluding lines of the second paragraph are merely presenting the various public relations’ scenarios that might result from dumping products. Hence, this option is incorrect.
(C) This is a tricky option. Though it appears correct, please note that the option talks about ‘changes’ in the federal tax laws whereas the third paragraph only talks about new provisions in the law.
(D) This statement conflicts with the information provided in the passage. (E) This is beyond the information provided in the passage.
Thus, the correct answer is A.
(B) The concluding lines of the second paragraph are merely presenting the various public relations’ scenarios that might result from dumping products. Hence, this option is incorrect.
(C) This is a tricky option. Though it appears correct, please note that the option talks about ‘changes’ in the federal tax laws whereas the third paragraph only talks about new provisions in the law.
(D) This statement conflicts with the information provided in the passage. (E) This is beyond the information provided in the passage.
Thus, the correct answer is A.
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Question: 4
Information in the passage suggests that which of the following, if true, would make donating excess inventory to charity less attractive to manufacturers than dumping?
Information in the passage suggests that which of the following, if true, would make donating excess inventory to charity less attractive to manufacturers than dumping?
Updated On: Oct 13, 2024
- The costs of getting the inventory to the charitable destination are greater than the above-cost tax deduction.
- The news media give manufacturers' charitable contributions the same amount of coverage that they give dumping.
- No straight-cost tax benefit can be claimed for items that are dumped.
- The fair-market value of an item in excess inventory is 1.5 times its cost.
- Items end up as excess inventory because of a change in the public's preferences.
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The Correct Option is A
Solution and Explanation
(A) Correct. Since the government is incentivizing the organizations to contribute their products to charity; the only reason manufactures will find this option less viable is when the costs exceed the benefits being provided.
(B) This information is contradicted by the information provided in the passage. Refer the lines, “The drawback is the remote possibility of getting caught by the news media.”
(C) This information is contradicted by the information provided in the passage. Refer the lines, “The corporation takes a straight cost write-off on its taxes and hauls the merchandise to a landfill….”.
(D) Even if this were true, the new tax allows the corporations to deduct the cost of the product donated plus half the difference between cost and fair market selling price, with the proviso that deductions cannot exceed twice cost. Therefore, the organizations stand to gain more by contributing their product to charity.
(E) This option is not relevant to the argument being presented.
Therefore, the correct answer is A.
(B) This information is contradicted by the information provided in the passage. Refer the lines, “The drawback is the remote possibility of getting caught by the news media.”
(C) This information is contradicted by the information provided in the passage. Refer the lines, “The corporation takes a straight cost write-off on its taxes and hauls the merchandise to a landfill….”.
(D) Even if this were true, the new tax allows the corporations to deduct the cost of the product donated plus half the difference between cost and fair market selling price, with the proviso that deductions cannot exceed twice cost. Therefore, the organizations stand to gain more by contributing their product to charity.
(E) This option is not relevant to the argument being presented.
Therefore, the correct answer is A.
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