In order to save money, some of Company X's manufacturing

Question

In order to save money, some of Company X's manufacturing plants converted from oil fuel to natural gas last year, when the cost of oil was more than the cost of natural gas. Because of a sudden, unexpected shortage, however, natural gas now costs more than oil, the price of which has fallen steeply over the past year. The cost of conversion back to oil would more than negate any cost savings in fuel. So Company X's fuel costs this year will be significantly higher than they were last year.

Which of the following is an assumption on which the argument above depends?

(A) Company X does not have money set aside for the increased costs of fuel. 
(B) The increase in the cost of fuel cannot be offset by reductions in other operating expenses. 
(C) The price of natural gas will never again fall below that of oil. 
(D) The cost of fuel needed by those of Company X's plants that converted to natural gas is not less than the cost of fuel needed by those plants still using oil. 
(E) The price of oil will not experience a sudden and steep increase.

hullas16 · Accepted Answer

In order to save money, some of Company X's manufacturing plants converted from oil fuel to natural gas last year, when the cost of oil was more than the cost of natural gas. Because of a sudden, unexpected shortage, however, natural gas now costs more than oil, the price of which has fallen steeply over the past year. The cost of conversion back to oil would more than negate any cost savings in fuel. So Company X's fuel costs this year will be significantly higher than they were last year.

Which of the following is an assumption on which the argument above depends?

1. Company X does not have money set aside for the increased costs of fuel.

OOS

2. The increase in the cost of fuel cannot be offset by reductions in other operating expenses.

OOS

3. The price of natural gas will never again fall below that of oil.

"Will never" is out of scope. We only need a comparision for this year vs last year.

4. The cost of fuel needed by those of Company X's plants that converted to natural gas is not less than the cost of fuel needed by those plants still using oil.

This is the right assumption. As we know that only some of the oil plants have converted to gas, there are still plants running with oil, so in order for the fuel costs to significantly increase we are assuming that the price hike by gas is not offset by the drop in prices of oil.

5. The price of oil will not experience a sudden and steep increase.

It does not matter if the price of oil increases as this only confirms that the fuel costs, which have already been hiked with conversion to natural gas are going to further increase

Bunuel · Answer

OFFICIAL EXPLANATION

The conclusion of the argument is that "Company X's fuel costs this year will be significantly higher than they were last year. Why? Because some of the company's plants switched from oil to natural gas when the price of gas was lower, and now the price of gas has outstripped the price of oil. We are asked to find an assumption that is necessary for the argument to work. 
 
(A) Whether Company X has the money to cover its costs does not affect the amount of those costs. 
 
(B) We do not need to assume that the costs cannot be offset by reducing expenditures in other areas in order for Company X's costs to be higher. 
 
(C) We do not need to assume that gas will never be cheaper than oil in order for Company X's costs to be higher. 
 
 (D) CORRECT.  The author does not take into account the fact that only "some" of the company's plants converted to natural gas. Some of the plants, then, still use oil, which is now cheaper. So in order to conclude that the company will have to spend more on fuel, the author must assume that the extra cost of the natural gas for the plants that converted is at least as much as the cost of the oil for the plants that did not. 
 
(E) We do not need to assume that the price of oil will not suddenly rise in order for the argument to work.

nageshshiv · Answer

If you reverse the answer choice D , the argument fails..So that is the answer.
Try to reverse the statement and check if argument fails. if argument fails i.e. the answer for assumption question.

1. Company X does not have money set aside for the increased costs of fuel.  Company X does have money set aside for the increased costs of fuel ...This statement doesn't address Conclusion 
2. The increase in the cost of fuel cannot be offset by reductions in other operating expenses.  argument is not talking about operating expenses-Out Of Scope 
3. The price of natural gas will never again fall below that of oil.  argument is talking about future oil price rates 
4. The cost of fuel needed by those of Company X's plants that converted to natural gas is not less than the cost of fuel needed by those plants still using oil.  Reverse the answer, Argument breaks...So this is the answer 
5. The price of oil will not experience a sudden and steep increase.  Reverse this ...argument still works.so this is out

hafizkarim · Answer

In order to save money, some of Company X's manufacturing plants converted from oil fuel to natural gas last year, when the cost of oil was more than the cost of natural gas. Because of a sudden, unexpected shortage, however, natural gas now costs more than oil, the price of which has fallen steeply over the past year. The cost of conversion back to oil would more than negate any cost savings in fuel. So Company X's fuel costs this year will be significantly higher than they were last year.

Which of the following is an assumption on which the argument above depends?

(A) Company X does not have money set aside for the increased costs of fuel.

It's pretty obvious that this answer choice has nothing to do with the conclusion, which states that Company X's fuel costs this year will be significantly higher than they were last year.

(B) The increase in the cost of fuel cannot be offset by reductions in other operating expenses.

The conclusion is very specific about rising fuel bill . This answer choice deals with "total costs". It is very possible that fuel costs are the highest ever and the total costs are the lowest ever. Unlikely,but definitely possible

(C) The price of natural gas will never again fall below that of oil.

This is a very tricky answer choice. The conclusion talks about [b]total fuel costs for this year.
Assume that the company closes its financial books on Dec 31st. It is very possible that fuel prices crash in Dec 30 to their all time lows. Despite this possibility, the fuel costs for the company can be higher than last year[/b]

(D) The cost of fuel needed by those of Company X's plants that converted to natural gas is not less than the cost of fuel needed by those plants still using oil.

A-Ha. Finally, we have an answer choice that addresses the real issue of "total fuel price". Just to be sure, let's negate this answer choice
The cost of fuel needed by those of Company X's plants that converted to natural gas is LESSthan the cost of fuel needed by those plants still using oil.
This shatters the conclusion. An assumption is an integral part of the argument. Negate the assumption and the conclusion falls apart like Romney in the presidential debate :-)

Total fuel costs Last year = Total Natural Gas Costs last year + Total Oil Costs last year
Total fuel costs this year = Total Natural Gas Costs this year + Total Oil Costs this year

Price of Natural Gas has significantly increased and price of Oil has gone down significantly.

If Total fuel costs this year needs to be significantly > Total fuel costs Last year, that implies
Total Natural Gas Costs this year >>> Total Oil Costs this year
Why ?
Because Total Oil Costs this year is much lesser than total oil cost last year.

(E) The price of oil will not experience a sudden and steep increase.

Do we really care about price of oil. Our comparison is the price of Natural Gas fuel this year Vs the price of oil LAST YEAR. This is like my neigbour winning a lottery. No material impact on my finances :-)

Total fuel costs Last year = Total Natural Gas Costs last year + Total Oil Costs last year Total fuel costs this year = Total Natural Gas Costs this year + Total Oil Costs this year Price of Natural Gas has significantly increased and price of Oil has gone down significantly. If Total fuel costs this year needs to be significantly > Total fuel costs Last year , that implies Total Natural Gas Costs this year >>> Total Oil Costs this year Why ? Because Total Oil Costs this year is much lesser than total oil cost last year. (E) The price of oil will not experience a sudden and steep increase. Do we really care about price of oil. Our comparison is the price of Natural Gas fuel this year Vs the price of oil LAST YEAR. This is like my neigbour winning a lottery. No material impact on my finances :-)

ChandlerBong · Answer

Hi KarishmaB , Conclusion - "So Company X's fuel costs this year will be significantly higher than they were last year." (A) Company X does not have money set aside for the increased costs of fuel. Can I eliminate this option based on the line of reasoning that whatever amount the company has set aside/or hasn't, doesn't affect our conclusion that the fuel costs this year will be significantly higher? As in even if we negate this option, our conclusion remains foolproof? Thanks in advance.

KarishmaB · Answer

Yes, whether they have set aside money or not doesn't matter. The point is will their costs be higher? How they will pay for it is beyond our scope.

K812 · Answer

I understand how we eliminated all the other options but I am not sure if D is a necessary assumption under a strict negation test. Here is an example-

Let's say last year total cost of natural gas is 1000 and oil is 2000 = total cost is 3000

This year, natural gas is 1300 and oil is 1600 = total cost is 2900

Total cost has still decreased even when cost of natural gas was lower than the oil.

The assumption should be- cost saving from oil using plants do not offset the cost increase from the natural gas plants

Bunuel   KarishmaB  can anyone explain if my reasoning is correct?

guddo · Answer

In order to save money, some of Company X's manufacturing plants converted from oil fuel to natural gas last year, when the cost of oil was more than the cost of natural gas. Because of a sudden, unexpected shortage, however, natural gas now costs more than oil, the price of which has fallen steeply over the past year. The cost of conversion back to oil would more than negate any cost savings in fuel. So Company X's fuel costs this year will be significantly higher than they were last year.
 
 Which of the following is an assumption on which the argument above depends?

The argument predicts that Company X’s fuel costs will be much higher this year because some plants now use natural gas, and natural gas has become more expensive than oil.  The key gap  is that the savings from plants still using cheaper oil might offset the higher costs at the plants using  natural gas .

(A) Company X does not have money set aside for the increased costs of fuel.

This is not required. The issue is whether fuel costs will increase, not whether the company has money reserved to pay those costs.

(B) The increase in the cost of fuel cannot be offset by reductions in other operating expenses.

This is not required. The conclusion is about fuel costs specifically, not total operating costs.

(C) The price of natural gas will never again fall below that of oil.

This is too strong. The argument is about this year’s fuel costs, not whether natural gas will always remain more expensive than oil.

(D) The cost of fuel needed by those of Company X's plants that converted to natural gas is not less than the cost of fuel needed by those plants still using oil.

This is correct. If the converted plants account for a substantial enough share of Company X’s fuel costs, then the increase in natural gas costs can make total fuel costs significantly higher. But if those plants use much less fuel than the plants still using oil, the drop in oil prices could offset the increase in natural gas costs.

(E) The price of oil will not experience a sudden and steep increase.

This is not required. If oil suddenly became more expensive, that would make Company X’s fuel costs more likely to rise, not less likely.

Answer: (D)

KarishmaB · Answer

It is given that this year natural gas costs more than oil.

" Because of a sudden, unexpected shortage, however, natural gas  now costs more than oil ,..."
 
So the 1300 and 1600 figures are not correct.

In order to save money, some of Company X's manufacturing

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

In order to save money, some of Company X's manufacturing

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards