GMAT Question of the Day - Daily to your Mailbox; hard ones only

It is currently 15 Aug 2018, 08:23

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Close

Request Expert Reply

Confirm Cancel

Anybody kindly rate my essay? :) kudos in return! thanks!!!

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
Intern
Intern
avatar
B
Joined: 24 Aug 2015
Posts: 42
Location: Spain
Concentration: General Management, Technology
GMAT 1: 750 Q49 V42
GPA: 3.5
WE: Management Consulting (Consulting)
Anybody kindly rate my essay? :) kudos in return! thanks!!!  [#permalink]

Show Tags

New post 21 Sep 2015, 03:35
1
ESSAY QUESTION:
The following memo was circulated by the management team of a retail company:

“We are very pleased to announce the relocation of our inventory, which had been located in four different warehouses throughout the country, to a single new warehouse near Company headquarters in Boston. This consolidated location will cut the company’s expenses for warehouse rent in half. As a result we expect our monthly profitability to go up by this amount.”

Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound.

YOUR RESPONSE:
The main underlying assumption behind the argument is that cutting warehouse rent expenses has a direct impact on the company's profitability; that is, savings from rent expenses will not imply any other additional costs and therefore will have a positive effect in the company's monthly balance. While it is true that cutting fixed costs has a direct and positive impact in profitability, the argument fails to consider whether the cut in rent costs would indirectly bring other costs, and whether these new costs would counterbalance the savings.

Various possibilities -which might have been taken into account by the company, but are not explicitly explained in the memo- exist that would contradict this argument. Centralizing the storage of inventory in a single location may negatively impact logistics costs: namely, fuel and labor costs for longer transportation distances. If we assume that the previous four warehouses were strategically and not arbitrary located throughout the country, logistics costs would likely increase. Another aspect that may be affected by the new warehouse location is the storage system of the company -namely "just in time", "FIFO", etc.-, which might also affect the overall balance.

On the other hand, if the company's main market were New England -i.e. New England and surrounding states account for a significant percentage of the company's revenue- it may seem indeed logical to centralize the storage near Boston, especially if the other three markets were not being profitable.

As a conclusion, we may say that while it is true that a cut in fixed costs has a positive impact in the monthly balance, it is likely that it will also raise other variable costs. These new variable costs can be either greater or smaller than the savings. In the first case profitability would decrease and in the second case profitability would increase by less than the amount saved. In none of the two cases would the monthly profitability go up by the amount of rent savings, as is stated in the memo. Therefore, only in the unlikely event where rent savings did not impact any other variable costs, would the statement in the memo remain valid.
_________________

Please, consider giving kudos if you find my answer helpful in any way :)

Don't worry about the world coming to an end today, it's already tomorrow in Australia

Manager
Manager
avatar
Joined: 15 Feb 2015
Posts: 109
Re: Anybody kindly rate my essay? :) kudos in return! thanks!!!  [#permalink]

Show Tags

New post 23 Sep 2015, 00:37
paulaalv11 wrote:
ESSAY QUESTION:
The following memo was circulated by the management team of a retail company:

“We are very pleased to announce the relocation of our inventory, which had been located in four different warehouses throughout the country, to a single new warehouse near Company headquarters in Boston. This consolidated location will cut the company’s expenses for warehouse rent in half. As a result we expect our monthly profitability to go up by this amount.”

Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound.

YOUR RESPONSE:
The main underlying assumption behind the argument is that cutting warehouse rent expenses has a direct impact on the company's profitability; that is, savings from rent expenses will not imply any other additional costs and therefore will have a positive effect in the company's monthly balance. While it is true that cutting fixed costs has a direct and positive impact in profitability, the argument fails to consider whether the cut in rent costs would indirectly bring other costs, and whether these new costs would counterbalance the savings.

Various possibilities -which might have been taken into account by the company, but are not explicitly explained in the memo- exist that would contradict this argument. Centralizing the storage of inventory in a single location may negatively impact logistics costs: namely, fuel and labor costs for longer transportation distances. If we assume that the previous four warehouses were strategically and not arbitrary located throughout the country, logistics costs would likely increase. Another aspect that may be affected by the new warehouse location is the storage system of the company -namely "just in time", "FIFO", etc.-, which might also affect the overall balance.

On the other hand, if the company's main market were New England -i.e. New England and surrounding states account for a significant percentage of the company's revenue- it may seem indeed logical to centralize the storage near Boston, especially if the other three markets were not being profitable.

As a conclusion, we may say that while it is true that a cut in fixed costs has a positive impact in the monthly balance, it is likely that it will also raise other variable costs. These new variable costs can be either greater or smaller than the savings. In the first case profitability would decrease and in the second case profitability would increase by less than the amount saved. In none of the two cases would the monthly profitability go up by the amount of rent savings, as is stated in the memo. Therefore, only in the unlikely event where rent savings did not impact any other variable costs, would the statement in the memo remain valid.




I certainly not in the position to rate your essay. But may I advise one thing-

A real example may help you. You have explained well the example about boston and New England. Perhaps a real example, -

If a company like AMAZON tries to consolidate the locations to one , then it might affect their business in various ways- one day delivery, etc.
Such example might strengthen your essay. Just a suggestion.

Thanks,
Rohan.
Intern
Intern
avatar
B
Joined: 24 Aug 2015
Posts: 42
Location: Spain
Concentration: General Management, Technology
GMAT 1: 750 Q49 V42
GPA: 3.5
WE: Management Consulting (Consulting)
Re: Anybody kindly rate my essay? :) kudos in return! thanks!!!  [#permalink]

Show Tags

New post 23 Sep 2015, 00:44
Many thanks for your valuable feedback, Rohan!
_________________

Please, consider giving kudos if you find my answer helpful in any way :)

Don't worry about the world coming to an end today, it's already tomorrow in Australia

Re: Anybody kindly rate my essay? :) kudos in return! thanks!!! &nbs [#permalink] 23 Sep 2015, 00:44
Display posts from previous: Sort by

Anybody kindly rate my essay? :) kudos in return! thanks!!!

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  

Events & Promotions

PREV
NEXT


GMAT Club MBA Forum Home| About| Terms and Conditions and Privacy Policy| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.