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Excess inventory, a massive problem for many busi-
nesses, has several causes, some of which are unavoidable.
Overstocks may accumulate through production overruns or
errors. Certain styles and colors prove unpopular. With
(5) 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
(10 ) 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
(15) 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,
(20) 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 draw-
back is the remote possibility of getting caught by the news
media. Dumping perfectly useful products can turn into a
(25) public relations nightmare. Children living in poverty are
freezing and XYZ Company has just sent 500 new snow-
suits to the local dump. Parents of young children are
barely getting by and QPS Company dumps 1,000 cases of
disposable diapers because they have slight imperfections.
(30) 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 char-
ity. The new tax law allowed corporations to deduct the
(35)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.
1. The author mentions each of the following as a cause of
excess inventory EXCEPT
(A) production of too much merchandise
(B) inaccurate forecasting of buyers’ preferences
(C) unrealistic pricing policies
(D) products’ rapid obsolescence
(E) availability of a better product
2. The passage suggests that which of the following is a
kind of product that a liquidator who sells to discount
stores would be unlikely to wish to acquire?
(A) Furniture
(B) Computers
(C) Kitchen equipment
(D) Baby-care products
(E) Children’s clothing
3. The passage provides information that supports which of
the following statements?
(A) Excess inventory results most often from
insufficient market analysis by the manufacturer.
(B) Products with slight manufacturing defects may
contribute to excess inventory.
(C) Few manufacturers have taken advantage of the
changes in the federal tax laws.
(D) Manufacturers who dump their excess inventory are
often caught and exposed by the news media.
(E) Most products available in discount stores have
come from manufacturers’ excess-inventory stock.
4. The author cites the examples in lines 25-29 most probably in order to illustrate
(A) the fiscal irresponsibility of dumping as a policy for
dealing with excess inventory
(B) the waste-management problems that dumping new
products creates
(C) the advantages to the manufacturer of dumping as a
policy
(D) alternatives to dumping explored by different
companies
(E) how the news media could portray dumping to the
detriment of the manufacturer’s reputation
5. By asserting that manufacturers “are simply unaware”
(line 31), the author suggests which of the following?
(A) Manufacturers might donate excess inventory to charity rather than dump it if they knew about the provision in the federal tax code.
(B) The federal government has failed to provide
sufficient encouragement to manufacturers to make
use of advantageous tax policies.
(C) Manufacturers who choose to dump excess
inventory are not aware of the possible effects on
their reputation of media coverage of such dumping.
(D) The manufacturers of products disposed of by
dumping are unaware of the needs of those people
who would find the products useful.
(E) The manufacturers who dump their excess inventory
are not familiar with the employment of liquidators
to dispose of overstock.
6. The information in the passage suggests that which of
the following, if true, would make donating excess inv
entory to charity less attractive to manufacturers than
dumping?
(A) The costs of getting the inventory to the charitable
destination are greater than the above-cost tax
deduction.
(B) The news media give manufacturers’ charitable
contributions the same amount of coverage that they
give dumping.
(C) No straight-cost tax benefit can be claimed for items
that are dumped.
(D) The fair-market value of an item in excess inventory
is 1.5 times its cost.
(E) Items end up as excess inventory because of a
change in the public’s preferences.
7. Information in the passage suggests that one reason
manufacturers might take advantage of the tax provision
mentioned in the last paragraph is that
(A) there are many kinds of products that cannot be
legally dumped in a landfill
(B) liquidators often refuse to handle products with
slight imperfections
(C) the law allows a deduction in excess of the cost of
manufacturing the product
(D) media coverage of contributions of excess-inventory
products to charity is widespread and favorable
(E) no tax deduction is available for products dumped or
sold to a liquidator