First AWA Practice Essay - please grade
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15 Dec 2016, 19:03
December 15, 2016
The following appeared as part of an annual report sent to stockholders by Olympic Foods, a processor of frozen foods:
“Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient. In color film processing, for example, the cost of a 3 by 5-inch print fell from 50 cents for five-day service in 1970 to 20 cents for one day service in 1984. The same principle applies to the processing of food. And since the Olympic Foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits.”
The argument that long term company experience will reduce the costs of production and thus maximize profits omits some important concerns that must be address to support the argument.
The report uses prints as an example of how overtime costs go down on a product. However, the report makes an unfair comparison. The process to print something versus the process of making food is incomparable. We are not told what type of food Olympic produces, but expenses like labor, materials, and commodity fluctuate over time, especially with items such as food. Since print and food are under completely different markets, it does not guarantee that the same principles will apply as noted in the report.
The report also implies that 25 years of experience will ensure an increase in profit. Nonetheless, there can be other factors such as technology, competition, and commodity value that could potentially increase the price of producing a product; resulting a decrease in profits. For example, what if a competitive firm comes in and sells the product at a lower value thus forcing Olympic Foods to reduce their price even furthermore.
In sum, because this report leaves many key issues, it does not sound persuasive towards the stockholders. If it included items such as the ones noted above, instead of telling stockholders how longevity of a company means cost reduction and profit maximization, the argument would have been more through and convincing.