The annual fiscal report from the Washington State Highways Commission

Question

The annual fiscal report from the Washington State Highways Commission revealed that the Highway Maintenance Department (HMD), at the end of 1997, had a large surplus in its highway materials fund, yet exactly a year later, the same fund had a deficit of almost $500,000. This discrepancy was investigated by a team of accountants commissioned by the state government, but their report after an exhaustive examination of HMD finances made it clear that from the beginning of 1997 to the end of 1998, not only had expenses remained generally unchanged, but also in some months there had been significant  declines.

Which of the following, if true, will justify the apparent discrepancy mentioned in the argument?

(A)   The Highway Maintenance Department received more funding in 1997 than it received in 1998. 
 (B)   The expenses incurred by the HMD in the period 1997 to 1998 were less than anticipated.  
 (C)   In some months, the HMD incurred unusually large expenses in conducting repairs due to wear-tear from weather.  
 (D)   The auditors commissioned by the state government used statistical methods such as standard deviation and arithmetic mean in compiling their report.  
 (E)   The HMD failed to utilize its resources to the maximum and fell short of expectations.

ayaz123 · Answer

Isn't C a better justification here rather than A. C factors in the high decline

GarvitAgarwal2007 · Answer

No as we know that expenses have remained the same

ManifestDreamMBA · Answer

Thinking of it this way, looking at the surplus funds at the end of 1997, funding for 1998 was reduced but the expenses remained generally unchanged over the 2 years, leading to a huge deficit at the end of 1998.

Answer A

TK0697 · Answer

The annual fiscal report from the Washington State Highways Commission revealed that the Highway Maintenance Department (HMD), at the end of 1997, had a large surplus in its highway materials fund, yet exactly a year later, the same fund had a deficit of almost $500,000. This discrepancy was investigated by a team of accountants commissioned by the state government, but their report after an exhaustive examination of HMD finances made it clear that from the beginning of 1997 to the end of 1998, not only had expenses remained generally unchanged, but also in some months there had been significant declines.

Which of the following, if true, will justify the apparent discrepancy mentioned in the argument?

Paradox is why did beg of '98 had large surplus of funds then end of 98' a large deficit despite expenses virtually unchanged and even decline?

So understanding business foundation...what impacts bottom line funds is either costs is more or less funding/income for bottom line to decrease. We are looking for an answer that addresses this.

(A) The Highway Maintenance Department received more funding in 1997 than it received in 1998.
Correct - less funding even if expense is same will cause deficit.

(B) The expenses incurred by the HMD in the period 1997 to 1998 were less than anticipated.
wrong - stimulus already states expenses remained almost unchanged and doesn't address then why did they go into deficit

(C) In some months, the HMD incurred unusually large expenses in conducting repairs due to wear-tear from weather.
wrong - stimulus already states expenses remained almost unchanged so "unusually large expenses in conducting repairs due to wear-tear from weather." are already included in that gen. exp. remained unchanged + doesn't address then why did they go into deficit

(D) The auditors commissioned by the state government used statistical methods such as standard deviation and arithmetic mean in compiling their report.
wrong - methods doesn't matter because it was told their expenses remained unchanged.

(E) The HMD failed to utilize its resources to the maximum and fell short of expectations.
wrong - unclear financial impact to deficit....for E to say failed to utilize resources to the maximum usually suggests more underuse, not extra spending. can you be underutilize and short of expectations yet the expenses remain the same? Yes, then how does it explain how HMD went from surplus to deficit in a year?

Axwe7 · Answer

@Brunei

I can't agree that A) is a strong answer - 'more' funding is too vague. For example, even $0.01 more in funding fits this answer, but wouldn't explain the paradox well. Hence why I dismissed Option A).

IMO, I believe D) is a better option since the accountants may have been statistical techniques that don't point out the relative magnitude of expenses. I.e., expenses may have been elevated by a large margin, and remained stable at a high level, with occasional decreases.

guddo · Answer

The annual fiscal report from the Washington State Highways Commission revealed that the Highway Maintenance Department (HMD), at the end of 1997, had a large surplus in its highway materials fund, yet exactly a year later, the same fund had a deficit of almost $500,000. This discrepancy was investigated by a team of accountants commissioned by the state government, but their report after an exhaustive examination of HMD finances made it clear that from the beginning of 1997 to the end of 1998, not only had expenses remained generally unchanged, but also in some months there had been significant declines. 
 
Which of the following, if true, will justify the apparent discrepancy mentioned in the argument?

The puzzle is this: if expenses stayed about the same or even dropped in some months, why did the fund move from a large surplus to a large deficit? The most natural explanation is that  money coming into the fund fell . So the correct answer should explain the deficit by pointing to lower funding, not higher expenses.

(A) The Highway Maintenance Department received more funding in 1997 than it received in 1998.

This is correct. If HMD got less funding in 1998 than in 1997, then the fund could easily shift from surplus to deficit even though expenses stayed generally the same.

(B) The expenses incurred by the HMD in the period 1997 to 1998 were less than anticipated.

This does not explain the deficit. If anything, lower-than-expected expenses would make a deficit less likely.

(C) In some months, the HMD incurred unusually large expenses in conducting repairs due to wear-tear from weather.

This is weaker. The passage already says expenses remained generally unchanged and even declined in some months, so this does not best explain the overall shift.

(D) The auditors commissioned by the state government used statistical methods such as standard deviation and arithmetic mean in compiling their report.

This is irrelevant. The method of analysis does not explain the financial discrepancy.

(E) The HMD failed to utilize its resources to the maximum and fell short of expectations.

This is too vague and does not explain why the fund went into deficit.

Answer: (A)

The annual fiscal report from the Washington State Highways Commission

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The annual fiscal report from the Washington State Highways Commission

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