Downsizing

Week 2 Discussion

Downsizing and fixed cost

Some industries that have reduced fixed cost commitments include government agencies such as the division of defense, computer industry, and the automotive industry.

I do believe that a reduction in cost have impaired the ability to meet the needs of customers if they go overboard. For example, cutting the defense department could leave America unprotected and unready if a war was to break out. For the computer industry cutting costs may cause production to slow down and they may not be able to meet product demands. For the automobile industry it could cause slow-down in design and development. When cutting costs there has to be balance, if the cuts are too aggressive it could hurt the industry and leave the consumer dissatisfied.

Ciccotello, C.S., & Green, S.G. (1995, July 1). Industry’s downsizing lessons. Government Executive [Electronic Version].  Retrieved from http://www.govexec.com/reinvent/downsize/0795mgmt.htm.

Direct Labor: Variable or Fixed Cost?

Direct labor can be a fixed or a variable cost. According to the text, the behavior of wage and salary costs differ based on labor regulations, labor contract and customs. (p. 83) It depends on management’s flexibility to adjust the workforce as needed. The more flexibility the more variable in nature the direct labor will be.

However many managers prefer it to be a fixed cost because they do not want to decrease their workforce if they experience a short-term sales decline although they may have to pay more to keep them it will cost less in the long-run because hiring and training new employees can be expensive. They do not want to add to many employees in they have a short-term sales increase because they could become over extended if the economy declines, so it would be more beneficial to keep the cost fixed.

One pro of making direct labor variable is that you only have to pay them when goods are being produced or the company is utilizing...