Key Topics
- 1. Provide four (4) examples of fixed costs that Federal Express will incur if it expands the Courier Pak. Indicate whether the cost is a discretionary or committed fixed cost and provide a brief explanation for your classification. (Note: Not all of the cost are directly stated in the case but are implied by the case discussion.)
- Solution:
- 2. Based on your reading of the Federal Express case, provide two examples of different variable costs that are or will be incurred by Federal Express when they sell CP’s to customers. Clearly define the cost driver is for the variable cost indicated and provide a brief explanation which critically supports your conclusion that this is the cost driver and the cost is a variable cost.
- Solution
- Solution:
Provide four (4) examples of fixed costs that Federal Express will incur if it expands the Courier Pak. Indicate whether the cost is a discretionary or committed fixed cost and provide a brief explanation for your classification. (Note: Not all of the cost are directly stated in the case but are implied by the case discussion.)
2. Based on your reading of the Federal Express case, provide two examples of different variable costs that are or will be incurred by Federal Express when they sell CP’s to customers. Clearly define the cost driver is for the variable cost indicated and provide a brief explanation which critically supports your conclusion that this is the cost driver and the cost is a variable cost.
3. Based on class discussion and related resources, text reading and common business/personnel knowledge, explain how Federal Express should classify the cost of fuel that is used to fly the planes from the stations to the Memphis hub in terms of cost classification concepts discussed in class. Defend your position so it can with stand critical challenges.
1. Provide four (4) examples of fixed costs that Federal Express will incur if it expands the Courier Pak. Indicate whether the cost is a discretionary or committed fixed cost and provide a brief explanation for your classification. (Note: Not all of the cost are directly stated in the case but are implied by the case discussion.)
Solution:
Courier Pak is a fast overnight delivery for the lighter packages. It primarily serves the purpose for executives and companies looking to send the documents. The usual price for the service is $12.5 up to 2 pounds of package. Courier Pak's uses a tampered proof and waterproof solution for the safe delivery of the documents. With the expansion of the business in the area of Courier Pak, Fedex will add a few fixed costs. Below are the fixed costs associated with the business:
1. Administrative cost : Company has to follow departmentalization that takes care of the Courier pak. This is discretionary fixed cost that will be change due to the rising volume of the courier pak. For example, in the case volume of the courier pak was positive from 1975 to 1976 and it is change on the higher end. Hence, the company has to pay special attention to the courier pak and its administration.
2. Special Packaging cost for Courier Pak.: Company has employed a special packaging for the courier pak that can ensure the documents safety. This is a fixed cost that company has to invest for every courier they send. Moreover, the size and weight is fixed, hence a similar package will be used for all the deliveries.
3. Cost for printing rate guides, brochures, routing guides is another fixed cost associated that will be more evident when the courier pak will be one of the main stream products expanded in different location. These materials are used by company employees based in different locations.
1. Administrative cost : Company has to follow departmentalization that takes care of the Courier pak. This is discretionary fixed cost that will be change due to the rising volume of the courier pak. For example, in the case volume of the courier pak was positive from 1975 to 1976 and it is change on the higher end. Hence, the company has to pay special attention to the courier pak and its administration.
2. Special Packaging cost for Courier Pak.: Company has employed a special packaging for the courier pak that can ensure the documents safety. This is a fixed cost that company has to invest for every courier they send. Moreover, the size and weight is fixed, hence a similar package will be used for all the deliveries.
3. Cost for printing rate guides, brochures, routing guides is another fixed cost associated that will be more evident when the courier pak will be one of the main stream products expanded in different location. These materials are used by company employees based in different locations.
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Place Your Order2. Based on your reading of the Federal Express case, provide two examples of different variable costs that are or will be incurred by Federal Express when they sell CP’s to customers. Clearly define the cost driver is for the variable cost indicated and provide a brief explanation which critically supports your conclusion that this is the cost driver and the cost is a variable cost.
Solution
1. Logistics Cost: The volume of the Courier Pak are higher on the month beginning and the end of the month, hence company has a variable cost in terms of logistics handling for the courier pak. There will be less transport employed in the middle of the month as compared to the end of the month.
2. Marketing and Promotional Cost: It is a discretionary cost and depends on the medium of advertisement. As mentioned in the case, Fedex has different options for marketing the Courier Pak. It can be an advertisement in a leading newspaper or any other mode such as television. Hence, this cost is discretion of the company perception about marketing and its budget.
3. Based on class discussion and related resources, text reading and common business/personnel knowledge, explain how Federal Express should classify the cost of fuel that is used to fly the planes from the stations to the Memphis hub in terms of cost classification concepts discussed in class. Defend your position so it can withstand critical challenges.
Solution:
General classification of fuel is a variable cost as it depends on the activity itself. If there is more planes, than the cost for the fuel increases otherwise, it remains the same. In case of Fedex business, there is a fixed routine for the flights to get to the destination over the weeknight everyday. Hence, the number of flights between station and Memphis hub will remain the same, so is the fuel cost associated with the planes. However, the price of fuel can change due to currency fluctuation or any other reason for the global oil price change. This will be a variable parameter for the fuel cost. Hence, the cost of the fuel can be classified as semi-variable.
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