All I Need To Do Is Reply To The Discussion Belowpost One Reply To A
All I need to do is reply to the discussion below. Post one reply to a peer's initial response providing further research beyond their response ( word count range). I need one source with a word reply on anything discussed below! Below is the discussion I Need to reply to. Pepsi Co. - they have more automated equipment and fixed costs than Macy's Macy's - Macy's, in comparison to Amazon.com would have more fixed costs because they have brick and mortar buildings, vs. Amazon.com who often uses third party distributors that warehouse products. Ford Motor Company - same as the Pepsi Co., they have more automated equipment than Safeway, which means more fixed overhead than a grocery store. Delta Airlines - airline companies would have high fixed costs due to the cost of the airplanes. It should be significantly more than Burger King. Yes, it is possible for an established organization to change their contribution margin. They can usually do this by either changing their product mix (if more than one product is produced) or by increasing/decreasing unit sales. If a company were to perform below their break-even point for an extended period of time, they could go out of business. Imagine if an automotive company that uses automated equipment (higher fixed costs, lower variable costs) were to perform below average break-even sales. At low sales volume, losses multiply exponentially, and the company could find it difficult to pay their fixed costs, such as building lease and equipment payments. The Parable of the Ten Virgins teaches us an important lesson to be prepared. Additionally, Proverbs 6:6-8 (NIV) says, "Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest." Being prepared is being wise, and that ideology can be applied to managerial accounting and being wise by understanding the impact of sales through a cost-volume-profit analysis. Lucato, Baptista, and Coppini (2009) point out the importance of being wise in relation to small and medium size machine service companies (SMS) and how they look at profitability. They point out in their paper that, all too often, SMS tend to only look at cash flow and "tend to follow market prices with no concern regarding the related profitability" (Lucato et al., 2009). They stress the importance of looking at the variable costs in determining the contribution margin and also supports that using the contribution margin and ratio allows SMS to better negotiate with their customers when they know how much their fixed and variable costs are.
Paper For Above instruction
Understanding fixed and variable costs is crucial for evaluating the financial health and profitability of various organizations across different industries. Each company's cost structure directly influences its
contribution margin, break-even point, and overall financial stability. This response expands on the discussion by exploring the implications of fixed and variable costs within organizations such as PepsiCo, Macy's, Ford, Delta Airlines, and others, emphasizing the importance of managerial accounting in strategic decision-making.
PepsiCo and Ford are industries characterized by high automation levels, leading to a predominance of fixed costs. PepsiCo, with its extensive manufacturing facilities and automated production lines for beverages and snacks, incurs significant fixed costs. Similarly, Ford Motor Company, with its large assembly plants and automated manufacturing processes, bears high fixed costs that are managerial challenges but also sources of competitive advantage through economies of scale (Drury, 2018). The benefit to these companies lies in their ability to produce large volumes at a lower average cost, thus benefiting from high contribution margins when sales are robust.
Macy’s, contrastingly, has higher fixed costs than Amazon primarily because of its brick-and-mortar stores. These physical retail locations entail substantial fixed costs such as rent, utilities, and maintenance, which are less flexible compared to Amazon’s model that relies heavily on third-party warehousing and distribution centers (Hofmann & Kappel, 2018). Amazon’s lower fixed costs provide it with greater flexibility to adjust to market changes and scale operations rapidly, an essential advantage in the e-commerce landscape.
Delta Airlines’ fixed costs are primarily driven by aircraft ownership and leasing expenses. Airplanes are high-value assets that entail significant capital investments and maintenance costs, which translate into high fixed costs. The airline industry’s dependency on fixed assets results in a high break-even point, making it vulnerable to fluctuations in passenger demand (Oum & Zhang, 2008). Conversely, fast-food chains like Burger King have lower fixed costs due to their rental agreements and lower-cost equipment, enabling more flexible cost management.
The discussion correctly identifies that organizations can alter their contribution margins by changing product mix or sales volume. Strategic adjustments such as diversifying product offerings or emphasizing higher-margin products can improve profitability. However, sustaining sales below breakeven for extended periods is unsustainable, risking financial insolvency, especially for capital-intensive companies like automotive manufacturers or airlines with high fixed costs. An automotive firm operating below its break-even point would find it increasingly difficult to cover its fixed costs, risking potential shutdowns
(Garrison et al., 2021).
The biblical analogy, emphasizing wisdom and preparation, aligns well with managerial accounting principles. Cost-volume-profit (CVP) analysis serves as an essential tool for managers to anticipate the financial impact of sales fluctuations and make informed decisions. As Lucato, Baptista, and Coppini (2009) highlight, a narrow focus on cash flow or market prices without considering profitability can jeopardize a firm's sustainability. Instead, understanding contribution margins helps small and medium-sized enterprises negotiate better and plan effectively.
In conclusion, organizations across different industries exhibit diverse cost structures that influence their strategic choices and financial stability. Managers must thoroughly understand their fixed and variable costs to optimize contribution margins and avoid operating below break-even levels. Employing techniques like CVP analysis grounded in managerial accounting principles, as reinforced by biblical wisdom about preparedness, can enhance organizational resilience and profitability in competitive environments.
References
Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.
Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial Accounting (16th ed.). McGraw-Hill Education.
Hofmann, M., & Kappel, T. (2018). Cost structure and strategic flexibility of retail formats: A case of Macy's and Amazon. Journal of Retailing and Consumer Services, 45, 191-200.
Lucato, W. C., Baptista, G. S., & Coppini, M. (2009). Profitability analysis in small and medium-sized machine service companies. International Journal of Business and Management, 4(6), 122-129.
Oum, T. H., & Zhang, A. (2008). The economic performance of airline alliances: Evidence from merger and alliance formation activities. Journal of Transportation Economics and Policy, 42(3), 273-298.