Identifying Cost Behavior
NBC News reports that increases in fuel costs are causing airlines to raise ticket prices. Jet fuel is a variable cost for airlines, which in turn will affect both the contribution margin and breakeven point. This provides a good example of the importance of understanding variable costs and how they affect business decisions.
Applying Cost-Volume-Profit Analysis
Amazon Go is a store that operates without the use of cashiers. The video discusses Amazon’s deployment of “computer vision technology” (a fixed cost), which greatly reduces the need for employees. This video provides a good example of Cost-Volume-Profit analysis applied in the real world. Amazon is reducing the payment of wages to employees (a variable cost) to boost its contribution margin and profit.
A CNBC analyst discusses issues Tesla had with trying to apply too much automation in its production process. This provides a good example of some of the potential pitfalls with trying to reduce labor costs to boost contribution margin. In the end, Tesla had to reduce the use of robotics (a fixed cost) and increase variable costs to continue to meet production goals.