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Hotco oil burners, designed to be used in asphalt plants, are so effic

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Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  Updated on: 28 Jun 2021, 11:11
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Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?


A) Another manufacturer’s introduction to the market of a similarly efficient burner

B) The Clifton Asphalt plant’s need for more than one new burner

C) Very poor efficiency in the Clifton Asphalt plant’s old burner

D) A decrease in the demand for asphalt

E) A steady increase in the price of oil beginning soon after the new burner is installed
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Originally posted by run4run on 13 May 2010, 12:04.
Last edited by Bunuel on 28 Jun 2021, 11:11, edited 2 times in total.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  13 May 2010, 13:19
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is it (E)?

Hotco will get = amount paid for oil in last 2 years - amount paid for oil in next 2 years

now suppose the plant used 100 liters of oil in last 2 years at a price of $2 per liter....which means the plant spent $200 on oil

the price of oil is steadily increasing

now suppose the plane used 70 liters of oils (because the burner is efficient) in next 2 years at a price of $2.30 per liter....which means the plant will spend $161 on oil

Hotco will get = 200 - 161 = $39 for its burner which will be disadvantageous for Hotco because of its plan.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  03 Nov 2010, 21:01
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In my opinion D will end up being profitable for Hotco

Less Demand- Less Oil used-Greater Savings ( Assuming Oil prices stay the same)--More money for HOTCO...

E is Right..
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  14 May 2010, 09:51
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I think it's E.

As I read thru them, nothing really rang a bell until I got to E. Cuz if the price of oil goes up, then the cost savings for using this new burner becomes less and less. If the price goes up really high, then cost savings go to zero or even that there's negative cost savings (or that it ends up being more expensive than before). His payment is the cost savings, so if that goes to zero that's disadvantageous to the dude. Anybody disagree with E?
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  04 Nov 2010, 13:20
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Gosh this was a hard one > 3 minutes :(

E - using the key word "oil" also if the price of the oil goes up there won't be much savings Hotco would get back by selling it.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  16 Apr 2013, 10:20
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run4run wrote:
Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?

A) Another manufacturer’s introduction to the market of a similarly efficient burner
B) The Clifton Asphalt plant’s need for more than one new burner
C) Very poor efficiency in the Clifton Asphalt plant’s old burner
D) A decrease in the demand for asphalt
E) A steady increase in the price of oil beginning soon after the new burner is installed

I am not understanding the content of the argument.Need every answer choice`s explanation
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  05 May 2013, 09:17
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Situation: Hotco selling burner to CA plant
Transaction details : CA plant will pay X+Y amount (say). This breakdown can be explained as below:
X = Cost savings of the plant using old burner
Y = Future cost savings using hotco burner. (hotco is very confident about the savings as their burners are really efficient)
Now, the argument concludes with a plan whereby the CA plant will make an estimated payment(unrealised amount) & this amount will be adjusted on the actual cost savings after 2 years. So, Cost savings > estimated payment; the plant will pay hotco, the difference & vice versa.

Best way to attack this is to think about Y component, ie:- savings based on the installation of hotco burner(projected cash savings for 2 yrs). That is the unknown part. We cannot do much on X as we already know the savings using old burner(last 2 yrs)

Now if oil prices shoot up after the new installation, CA plant's savings is directly affected & thereby endangering hotco's plan, which will eventually lead hotco to a loss.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  Updated on: 06 May 2013, 13:39
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mun23 wrote:
run4run wrote:
Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?

A) Another manufacturer’s introduction to the market of a similarly efficient burner
B) The Clifton Asphalt plant’s need for more than one new burner
C) Very poor efficiency in the Clifton Asphalt plant’s old burner
D) A decrease in the demand for asphalt
E) A steady increase in the price of oil beginning soon after the new burner is installed

I am not understanding the content of the argument.Need every answer choice`s explanation


I am giving it a try here to explain this:

Hotco will run into losses if the diference in the amount paid by Clifton asphalt manufacturing company in the last 2 yrs is close enuf to the cost that the compnay will pay in the nex t2 yrs. ok !!
Now lets analyse the answers.

A) Another manufacturer’s introduction to the market of a similarly efficient burner - there is no comparision with other manufacturers. irrelevant. INCORRECT

B) The Clifton Asphalt plant’s need for more than one new burner. - out of scope. INCORRECT

C) Very poor efficiency in the Clifton Asphalt plant’s old burner. - might sound true. but this is a catch. we cannot compare efficiencies of old and new burner.INCORRECT

D) A decrease in the demand for asphalt. - we have no clue what demand of asphalt has to do with oil burners. this is verbal section in gmat not a physics exam in a college. INCORRECT.

E) A steady increase in the price of oil beginning soon after the new burner is installed- If the price of oil increases, the company will have to pay more for its oil in the coming 2 yrs. so the difference in price will reduce and HETCO will receive less in return. - CORRECT.

Originally posted by myselfhari on 06 May 2013, 03:02.
Last edited by myselfhari on 06 May 2013, 13:39, edited 1 time in total.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  06 May 2013, 13:35
How the hell to answer this when I have no idea what oil burner is and what the whole passage talks about...
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  06 May 2013, 20:40
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Ivan91 wrote:
How the hell to answer this when I have no idea what oil burner is and what the whole passage talks about...


Hotco oil burners, designed to be used inasphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actuallypaid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Hotco oil burners--the product being sold
Asphalt Plants--The industry the product being sold is aimed at. Asphalt being the product this industry produces.
Cost savings of price paid for oil, used by the oil burner, will be the cost of the Hotco oil burner. Range is the two years prior to installation of the Hotco Oil Burner and the two years following the installation of the Hotco Oil Burner.

Thus the price of oil is critical to the cost savings and the price paid for the Hotco Oil Burner.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  02 Jun 2014, 15:39
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Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?
Summary: Hotco pricing plan is Price of oil * oil used (In older plants) - Price of oil * oil used (in Hotco's plants)


A) Another manufacturer’s introduction to the market of a similarly efficient burner
Effect on Hotco business = yes
Effect on Hotco plans to profit from its efficient plants = No

B) The Clifton Asphalt plant’s need for more than one new burner
If the extra burner replaces another old plant = more money for Hotco
If the extra burner replaces no another plant = more money for Hotco

C) Very poor efficiency in the Clifton Asphalt plant’s old burner
As per summary equation above, this makes more money for Hotco (Greater previous cost)

D) A decrease in the demand for asphalt
As per summary equation above, this makes more money for Hotco (Lower current cost)

E) A steady increase in the price of oil beginning soon after the new burner is installed
As per summary equation above, this could make the equation become negative, i.e. Hotco lose money in this pricing plan. This is the only answer that shows disadvantage of the plan. Answer is therefore (E)
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  20 Feb 2015, 06:56
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Got traped by D, as I've only 40 sec... One should not rush such questions. It's actually not a very difficult one.
So, Hotco are more efficient than standard Burners. But the clue is here that Hotco and Standard Burner BOTH use Oil.
I've rushed this one and thought that Hotco uses alternative fuel....

A) Another manufacturer’s introduction to the market of a similarly efficient burner - irrelevant
B) The Clifton Asphalt plant’s need for more than one new burner - strengthens...
C) Very poor efficiency in the Clifton Asphalt plant’s old burner - strengthens....

So, the last two are interesting:

D) A decrease in the demand for asphalt - [I've found a very good explanation wha not (D) from EGMAT] So, if the demand for asphalt decreases, the amount of oil used by Clifton to manufacture asphalt would likely decrease. If the amount of oil decreases, Clifton’s cost savings on oil would be more than they had been for the previous two years. In this case, it would be an advantage for Hotco, not a disadvantage.
E) A steady increase in the price of oil beginning soon after the new burner is installed -> CORRECT. this one has been explained by others, so I would not restate them
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  06 Jan 2016, 12:31
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Wanted to explain choice D for those not familiar. General business equation = Revenue - Costs = Profits.

The premise states that the overall amount to be paid is the difference in costs, that is, difference between costs prior to the installation and costs after the installation.

An increase in demand for asphalt will increase revenue and has nothing to do with costs.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  04 Apr 2016, 13:55
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run4run wrote:
Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?

A) Another manufacturer’s introduction to the market of a similarly efficient burner
B) The Clifton Asphalt plant’s need for more than one new burner
C) Very poor efficiency in the Clifton Asphalt plant’s old burner
D) A decrease in the demand for asphalt
E) A steady increase in the price of oil beginning soon after the new burner is installed


For some reason I can't understand this. Any help will be most appreciated.


The gap of saving will decrease if the price of oil increases. For example, let suppose the initial cost of oil expenditure was $100 and because of great efficiency of the new burner the cost has reduced to $70, so the saving would be $30. But what if the crude oil price rises to twice? then there will be no saving.

hope you liked the clarification. #Kudos
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  06 Sep 2017, 17:08
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i feel so stupid...read the q-stem incorrectly. there's a lot to digest here.

Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

TRANSLATED: HOTCO'S REVENUE = HOW MUCH CLIFTON PAID FOR OIL USING OLD BURNER (LAST 2 YEARS) - HOW MUCH CLIFTON WILL PAY FOR OIL (NEXT 2 YEARS)
> What would be ADVANTAGEOUS for Hotco? <-- Strengthen: If Clifton paid a LOT more for oil using the old burner AND/OR if Clifton is saving a LOT using the new Hotco oil burner
* ON THE OTHER HAND, WE WANT TO WEAKEN.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?

A) Another manufacturer’s introduction to the market of a similarly efficient burner
- out of scope
B) The Clifton Asphalt plant’s need for more than one new burner
- out of scope too
C) Very poor efficiency in the Clifton Asphalt plant’s old burner
- OPPOSITE! Poor efficiency in old burner means higher revenue for Hotco! I initially went for this when I misread the question as "advantage" instead of "disadvantage"
D) A decrease in the demand for asphalt
- out of scope. concerned with pricing of oil, not asphalt
E) A steady increase in the price of oil beginning soon after the new burner is installed
- Although the new burner is more efficient, if the price of oil goes up theoretically, this could diminish the savings. The understood "savings" you get from using Hotco relies on the assumption that you are paying the same (or less) for oil!

Kudos please if you find this helpful :)
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  03 Sep 2018, 08:44
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run4run wrote:
Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?

A) Another manufacturer’s introduction to the market of a similarly efficient burner
B) The Clifton Asphalt plant’s need for more than one new burner
C) Very poor efficiency in the Clifton Asphalt plant’s old burner
D) A decrease in the demand for asphalt
E) A steady increase in the price of oil beginning soon after the new burner is installed


For some reason I can't understand this. Any help will be most appreciated.


Option(E) is correct

Option A : The burner is already installed, so a competitor is not a problem.

Option B : The plant's need for multiple burners should bean opportunity for Hotco, nota disadvantage.

Option C : If the old burner was very inefficient, the new burner should save a great deal of money that would ultimately go to Hotco.

Option D : If demand decreases, less oilwould need to be purchased, and Hotco would get more money.

Option E : Correct. This statement properly identifies a factor that would constitute a disadvantage for the plan since the payment for the burner is based on savings in oil purchases, any increases in the price of oil will decrease savings and thus decrease payments to Hotco.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  04 Oct 2020, 16:18
Hi experts!

Although E makes sense, I originally chose B, and I still can't seem to definitively rule it out. Within B, if it is true that CA plant needs more than one new burner, but only uses the one that is sold to it, what if it overuses it, driving up the cost? It could potentially void the benefits that were made with the more efficient system. Is this logic flawed? MartyTargetTestPrep GMATNinja egmat
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  06 Oct 2020, 19:34
samgyupsal wrote:
Hi experts!

Although E makes sense, I originally chose B, and I still can't seem to definitively rule it out. Within B, if it is true that CA plant needs more than one new burner, but only uses the one that is sold to it, what if it overuses it, driving up the cost? It could potentially void the benefits that were made with the more efficient system. Is this logic flawed? MartyTargetTestPrep GMATNinja egmat


You are assuming that it will only use one burner. Based upon your assumption you come to a conclusion that it will drive up the cost.

What if CA needs 2 burner and used both of them.In this case, old 2 burners will be replaced by these 2 burners and hence will be beneficial for hotco.

In option E , however the talking point is price. Here on top of the option given, you are not assuming anything .

Hence E is the correct answer.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  28 Jun 2021, 11:08
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Hotco will get = amount paid for oil in last 2 years - amount paid for oil in next 2 years
Hence E
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Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] New post  01 May 2022, 10:42
Hi AndrewN

If the cost of oil increases, it will increase both for maintaining the old burner and the new burner. It is the quantity of oil that will be considerably less for the new burner. So the effective difference between these two expenses i.e "new cost x (old quantity - new quantity of oil)" should still remain the same. What am I missing in option E ?

There is no where mentioned in the question that existing plant uses more than 1 burner. In fact it says "cost savings between the total amount the asphalt plant actually paid for oil using its former burner " and I believe that should be sufficient to assume that there is no other burner. So if we go by option B, the use of 2 new burners would in turn reduce the amount of payment received as it would be calculated based on the oil used by just 1 old burner. What is wrong with option B ?
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