Home Depot Fixed Costs

Note: You can assume that variable costs are constant so that the average of them is the variable cost relevant for a change in sales.

Thirdly, since the total fixed costs account for 14.1% of its sales in the year of 1983 and 1984, we assume the total fixed costs will remain at this level until 1989. Similarly, the account receivable, account payable, and inventories stays at 10%, 5.5% and 4.5% of sales respectively.

Another concern identified, is the utilities expense budget for utilities in Year 9 which is $150,000. This amount is identified as a fixed amount and is unrelated to actually production activities and manufacturing efficiency. Considering that production levels and activity fluctuates throughout the year, the budget for utilities should be a variable item. An example; from Year 7 to Year 8, the utilities expenses increase by $15,000 and with this detection, ways to reduce this expense should be investigate. Another concern is a duplicated line item under the Selling, General, and Administrative Budget for Utilities and Utilities and Services. Another issue for concern, Total Variable Cost was reported to be lower; however was not enough for the lack of sales combined with an increase in advertising and transportation which resulted in an overall negative result. The low Net Sales directly impacted the Contribution Margin which decreased by $49,397. Overall, these concerns indicate the need for a flexible budget with variance analysis.

Home Depot has high fixed costs in running its retail operation. A large number of Home Depot stores exist to meet the needs of consumers wanting the convenient purchase of often large items. The inventory that sits at each store and distribution center is a very high fixed costs that incur (Edmonds & Tsay & Olds). However, this diverse and high inventory level is needed for Home Depot to compete.

Mendel Paper Company has been doing relatively well with the sales of computer paper, napkins, place mats, and poster board. With more people eating out, the demand for napkins and place mats have increased. Computer paper and poster boards have slowly increased in demand as well. However, there is concern at the company with the fixed cost of operations. Marlene Herbert, the plant superintendent, said, “As we have automated our operation, we have experienced increases in fixed overhead and even variable overhead. And, we will have to add more equipment since it appears that we need even more plant capacity. We are operating over our normal capacity as it is.” (Case 2B). With the new production costs added in, will

In the case of Mendel Paper Company which produces four basic paper products lines at one of its plants: computer paper, napkins, place mats, and poster board. Although the plant superintendent, Marlene Herbert is pleases with increased sales he is also concerned about the costs. The superintendent is concerned with the high fixed cost of production, the increases in fixed overhead and even variable overhead. He feels that the production of place mat should be discontinued. His reason for the discontinuation is that the special printing is driving up the variable overhead to the point where the company may not find it profitable to continue with the line. After reviewing the future predictions of the

An industry of competition, and tight margins The Home Depot, and Lowe 's Company are still at it. Both of these companies stand now as the industry standard for the home improvement sector. The numbers that will be presented in this study show proof that both companies have extremely strong financial positions, and a long future in the home improvement industry. Competition is good for the retailer, but even better for the customer.

The first company that will be analyzed is Home Depot. Home Depot's total assets increased to $40,518 million from $40,125, an increase of 0.9%. These figures, however, are lower than the value of total assets on the books for HD for the prior three years. The 2008 fiscal year was the point where Home Depot had the highest asset levels at $44.324 billion. The recession has been the biggest culprit for the decline in the size of Home Depot. All of the firms in the building supplies industry have a strong relationship between their sales and the strength of the housing market, as home purchases are a major impetus for home renovation projects. Home Depot's size declined with the onset of slowness in the housing market, and it is expected that its size will not begin to increase until the housing market recovers. Home Depot management has noted that there are signs of life in the US housing market, and that this should be taken as an encouraging sign for the company (Isidore, 2012). Indeed, the company's balance sheet has grown in size throughout the 2013 fiscal year, so that the latest Q3 total

This is because companies need to understand what their costs are, like construction companies, to be able to bid on jobs. These types of companies understand what it takes to complete most aspects of the jobs they are bidding on. When they provide a prospective customer with a job cost sheet it breaks down material costs, labor costs, and overhead costs to show their customer where the costs are going to be incurred. These types of companies know how many hours it will take to assemble parts, construct parts of a house, repair pipes, and many other types of work of this nature. These companies spend time analyzing their costs per job to compute a standard for each category of their jobs and identify cost drivers to come to a standard cost.

Home Depot is a major company that is in the construction and home improvement business. When the housing market took a turn for the worse, the revenue was 3 percent lower in 2006 and 21 percent lower in 2007. The accounting concept that is used for Home Depot is operating leverage. According to Lev (1974), a firm's operating leverage is defined as the ratio of the fixed to variable operating costs (p. 627). When the operating leverage is high, the fixed cost is higher than the variable costs (Edmonds, Tsay & Olds, 2011). The 3 percent decline in sales activity is caused by the 3 percent decline in variable costs for Home Depot. The variable cost changed because the fixed cost remains the same event if there is a changed in sales. The decline

An identification of the accounting concept involved in the Home Depot concept is Operating leverage. Business managers apply operating leverage to magnify small changes in revenue into dramatic changes in profitability (Edmonds, Tsay, & Olds, 2011). Operating leverage comes into play when a firm has a combination of fixed and variable cost. According to Thomas P. Edmonds, Bor-Yi Tsay, & Philip R. Olds explained that when all costs are fixed, every sales dollar contributes one dollar toward the potential profitability of a project (2011). They further explained that a simple small change in a business' sales volume can significantly affect the company’s profitability (2011).

In Exhibit 2, Salem Data Services Summary (SDS) Results of Operations, First Quarter 2004, it focuses on fixed expenses and variable expenses. It is essential for SDS to understand their business costs. The fixed costs are those expenses that do not fluctuate with changes in the level of business activity. According to SDS Q1 report, these expenditures include items such as expenses, equipment costs, wages and salaries. The Variable costs are expenses that vary depending on a company's production volume that can either increase or decrease. The variable costs are the power and operations hourly personnel.

In a desire to increase the company’s working capital for the company’s future financial investment in a plant modernization and expansion program, Beauregard Textile Company increased the price of its Triaxx-30 product to bring its profit margins up to that of their other products. In a sequential-move game theory Calhoun & Pritchard, Beauregard’s primary rival, did not raise its price even though its costs were assumed to be similar. As a result, Beauregard’s unit sales dropped significantly as their customers purchased the cheaper competitor’s product, causing Beauregard’s profit contribution to decrease. A closer examination of Beauregard’s cost analysis revealed that it includes fixed costs, which when

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

After making some wise short-term investments at a race track, Chris Low had some additional cash to invest in a business. The most promising opportunity at the time was in building supplies, so Low bought a business that specialized in sales of one size of nail. The annual volume of nails was 2,000 kegs, and they were sold to retail customers in an even flow. Low was uncertain of how many nails to order at any time. Initially, only two costs concerned him: order-processing costs, which were $60 per order without regard to size, and warehousing costs, which were $1