2006 Scholarships

We, the stockholders of Olympic Foods have thoroughly analyzed and evaluated the projection presented by the company. As a result, we want to point out several fallacies that we have located in the assumptions stated by Olympic Foods.

Olympic Foods argues that the costs of processing its food products will decrease in the same manner as it did in color film processing industry. The argument is based on the calculation of the costs of 3-by-5-inch print in 1970 and in 1984. According to Olympic Foods, the cost of the print for five-day service was 50 cents in 1970. It can be easily calculated that the cost of the print for one day would be 10 cent at that time. Later, in 1984 the cost of the 3-by-5-inch print was 20 cents for one-day service. It can be concluded that the 10 cents as a cost for a one-day service in 1970 compared to 20 cents for the same service in 1984 constitutes to a rise in costs and in no manner can be assumed as “fall” as Olympic Foods states. The calculations lead us to conclude that the analysis of film industry prepared by of the Olympic Foods is erroneous and cannot support the projections presented by the company.

Another illogical argument that we would like to discuss is the general comparison of color film processing business trends to that of the food processing industry. It should be noted, that, when a company compares the costs of its own industry to that of another business, the latter should be chosen with great caution. The industries compared should be of similar type, serving similar needs of the customers. For example in the case of Olympic foods, the frozen foods industry could be successfully compared to the fresh food processing business.
Comparison of film processing business to the food processing industry is flawed. Even if the analysis presented by Olympic foods about declining costs of film processing industry was correct, we would not take it into consideration while projecting the costs of Olympic Foods operations.

As the stockholders of the Olympic foods, we would like to express our deepest concerns with the assumptions presented by the company. Not only we are not persuaded by the projections, but also we have started to doubt the professionalism of the company’s management. The case provided to us is based on illogical comparison and the line of reasoning behind that argument is erroneous. Despite that, we still keep the hope in the bright future of Olympic Foods, which is a reputable and well-established company. We congratulate the company with the twenty-fifth anniversary, but strongly advise the management of Olympic Foods to improve its business analysis practices in nearest future.

In the above argument, the author claims that the frozen food co. will cut its cost and maximize its profits. Author also gives some arguments in support of his claim but author's resoning is specious because of few reasons.

First of all, the author’s statement that the processing cost in an organization would go down with time because an organization learn how to do things better over time is not a necessarily true statement. There are several other factors which could affect processing cost such as cost of raw material and taxes. For instance, maybe the cost of raw materials increases to such an extent where more economical way of processing could not compensate for rise in raw material’s cost.

In support of his claim the author quotes an example of the cost of a color film which has ‘fallen’ to 20 cents for one day in 1984 from 50 cents for five days in 1970. It is similar to say that cost of something has fallen from 100 cents for 10 days to 99 cents for one day. Hence, it is incorrect to cite this numerical fact in favor of the argument.

Then the author goes on to draw an analogy between color print industry and frozen food industry and says that the same principle applied to frozen food industry as to color print industry. Both industry could have completely different business circumstances. Maybe the frozen food industry went through less technological advances than did color print industry so that frozen food industry would get less help in cutting the processing cost down. Also the demand curve of both business could vary from each other over time to time. Hence we can say that it’s improper to draw an analogy between the two different businesses here.

In the end of the argument the author aver that ‘since’ author’s organization have completed twenty five years, we could expect that this experience would enable them to cut cost and maximize profits. However there is no reason one could expect that change because the company has have 25 years of work experience. Why one should not had expected a change 5 years back when company had a considerable 20 years of work experience?

However, in my opinion the author would have made his claim more substantial if he had given some more convincing arguments and facts. As, instead of comparing frozen food company with a color print company he might have compared frozen food company with one that of a similar industry and then followed that analogy by quoting some more verifiable factors which are responsible for cost cutting and profit maximization such as changes and development in technology used in frozen food industry or statistics about growing demand of frozen food and how all that could cause profit maximization. This kind of business analysis would have only made this argument more logical.

Hi Guys,

I am new to this forum, so unfortunately I could not participate in this competition.

I noticed one thing in both the essays written: both have attacked the following statement itself.
<b>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. </b>

This statement is not incorrect. Cost of film processing also depends on how fast you want it. A one-day service will always be costlier than five-day service. In 1970, five-day service cost 50 cents. One-day service would have cost much more than 50 cents. In 1984, even one-day service cost 20 cents, so a five-day service would cost much less than 20 cents.

So, the example is correct. The cost of processing has dropped.
- Five-day service cost has fallen from 50 cents to <i>less than</i> 20 cents.
- One-day service cost has fallen from <i>more than</i> 50 cents to 20 cents.

The statement is very much correct for film processing industry. The fault lies in comparing film processing industry to the food industry. In the former, costs drop as the volume increases (and hence enabling research and drastic changes in technology) while in the latter, costs vary more or less linearly on volume/inflation, diverting only because of some process enhancements. So the latter cannot drop costs drastically with time while the former can.

Regards,
Rajesh