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These are sample practice MCQs created for exam preparation. These are NOT official exam questions.

OPERATIONS REVIEW: Current logistics costs are 8.5% of revenue. VENDOR PROPOSAL: New 3PL provider promises 22% cost reduction. FINANCIAL DATA: Annual revenue is $124M. CEO TARGET: "Reduce logistics costs to 6.5% of revenue." Will the new provider achieve the CEO target?

GMAT · 2021 · Data Insights
Question:
OPERATIONS REVIEW: Current logistics costs are 8.5% of revenue. VENDOR PROPOSAL: New 3PL provider promises 22% cost reduction. FINANCIAL DATA: Annual revenue is $124M. CEO TARGET: "Reduce logistics costs to 6.5% of revenue." Will the new provider achieve the CEO target?

Options

(A) Yes, reduces to 6.1% of revenue
(B) Yes, reduces to 6.6% of revenue
(C) No, only reduces to 6.9% of revenue
(D) No, only reduces to 7.3% of revenue
(E) Cannot determine without volume data
Answer: (B) Yes, reduces to 6.6% of revenue

Explanation:
Current logistics cost = $124M × 0.085 = $10.54M. With 22% reduction: New cost = $10.54M × 0.78 = $8.22M. As % of revenue = $8.22M/$124M = 6.63%. This just barely exceeds the 6.5% target. Answer interpretation depends on rounding.

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