fixed costs

Examples of fixed costs in the following topics:

• Break-Even Analysis

  • In economics and business, the break-even point (BEP) is when costs (or expenses) and revenues are equal: there is no net loss or gain and the business has "broken even" by earning back its costs.
  • If they estimate they cannot sell that many, they can reduce their fixed costs (renegotiating rent, keeping phone bills or other expenses down), reduce variable costs (paying less for materials per item produced, usually by finding a new supplier), or raise the price of their tables.
  • Any of these approaches would lower the break-even point; the company might only need to sell 150 tables per month and pay its fixed costs if it can cover or alter them through other means.
  • The graph shows when sales can cover fixed costs so the company will be able to stay in business in the short-term.
  • Break-even points can be determined based on sales and total costs.

• Total Quality Management (TQM)

  • An important basis for justifying TQM is its impact on total quality costs.
  • TQM is rooted in the belief that preventing defects is cheaper than fixing them.
  • Prevention costs are costs created from the effort to reduce poor quality.
  • Appraisal costs include costs associated with conducting quality audits and the inspection and testing of raw materials, work-in-process, and finished goods.
  • Who organizations buy from significantly impacts costs and quality.

• Considering the Environment

  • Alternatively, a fixed and specific approach to organizational design will capture more value in a mature market, where variability and uncertainty are limited.
  • Alternatively, a company that demonstrates a low-cost strength (producing products cheaper than the competition) benefits from employing a structural or bureaucratic strategy to streamline operations.
  • Understanding these varying forces gives the company an idea of how adaptable or fixed the organizational structure should be to capture value.

• Differences in Messaging in For-Profit vs. Non-Profit Organizations

  • In contrast, for the consumer goods marketer, these various marketing components are relatively fixed.
  • Tax laws may require differentiating between the cost of an item versus its gift value, such as a $100.00 per-person dinner for a meal that actually cost $25.00 per person to provide.

• Porter's Competitive Strategies

  • Michael Porter classifies competitive strategies as cost leadership, differentiation, or market segmentation.
  • Porter identifies two competencies as most important: product differentiation and product cost (efficiency).
  • Cost leadership pertains to a firm's ability to create economies of scale though extremely efficient operations that produce a large volume.
  • Cost leaders include organizations like Procter & Gamble, Walmart, McDonald's and other large firms generating a high volume of goods that are distributed at a relatively low cost (compared to the competition).
  • Discuss the value of using Porter's competitive strategies of cost leadership, differentiation, and market segmentation

• The Importance of Fringe Benefits

  • As the search for high-quality workers becomes more difficult and health care costs increase, it has become important to offer fringe benefits to gain a competitive advantage.
  • Healthcare costs have risen at a rate that makes it difficult for governments, businesses, and individuals to keep up.
  • While the cost negatively impacts businesses, it also offers an opportunity through competitive advantage.
  • This is to say, organizations can capture lower health insurance costs per employee due to scale economies, allowing organizations an important bargaining chip in the hiring process.
  • Identify the critical importance of providing strong benefits packages, particularly in light of current external factors (e.g., health care costs)

• The Challenge of Competition

  • Low-cost suppliers often benefit largely from economies of scale.
  • Quality is therefore a strong antithesis to the low-cost strategy.
  • Companies generally achieve either a cost or a quality advantage (very rarely, both).
  • In panel A, both companies' products have the same cost, but Company I's product has higher value.
  • In panel B, both companies' products have the same value, but Company I's product has lower cost.

• The Financial Value of Social Responsibility

  • CSR provides a financial return in the form of lower costs, higher revenue, and returns to investors.
  • This is attributable to lower costs or increased revenue from customers who want to support business that reflects their personal values.
  • An organization's CSR practices might also increase employee loyalty, which lowers the cost of turnover; it also helps attract potential employees willing to work for less for a company whose values they share.
  • Discuss the argument that the short-term costs of social responsibility generate long-term revenues exceeding those costs

• Global Strategy

  • A global strategy may be appropriate in industries where firms face strong pressures to reduce costs but weak pressures to respond locally; globalization therefore allows these firms to sell a standardized product worldwide.
  • By expanding to a broader consumer base, these firms can take advantage of scale economies (cost advantages that an enterprise obtains due to expansion) and learning-curve effects because they are able to mass-produce a standard product that can be exported (providing that demand is greater than the costs involved).
  • Globalization is not limited to cost leadership, however.
  • The globalization strategy of Starbucks—while it includes selling in many countries—is hugely depending on global sourcing, and strategic managers must carefully monitor this process for costs and benefits.
  • Managers must conduct a cost/benefit analysis to identify which country actually offers the best profit potential.

• Cooperative Strategy

  • A strategic alliance is a cooperation where each member expects the benefit from cooperation will outweigh the cost of individual efforts.
  • To save costs, the competitor with the best production capability can insource the business process of the other competitors.
  • This practice is especially common in IT-oriented industries as a result of low to no variable costs, e.g. banking.
  • High switching costs, costs for searching potential cooperative sourcers, and negotiating may result in inefficient solutions.
  • Pooling expensive resources and share development or R & D costs on new products