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Cost Management - Fixed Cost and Strategic Need

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Authors are of the opinion that the Defense Department’ s endeavour to eliminate permanent staff as an attempt to enhance the operating leverage is not justified. The department has reduced permanent staff up to 30 percent between 1985 and 1997 and its roles and applications are now changing to a great extent. Not only this but the reduced operation of the defense establishments have lowered its requirement for production and maintenance jobs – bringing down the expenses on fixed costs considerably. The DoD outsources many of its operations with private firms keeping fewer permanent staff in its payroll.

Authors have justly compared and contrasted the ability of private firms and the DoD reducing operating leverage for diverse needs. It could be a prudent decision for many of the private firms necessary for survival but for the DoD the major objective is to meet the defense needs of the nation and certainly not to achieve cost reductions (Ciccotello & Green 1995). Switching Fuel to Save on Cost Smith (2012) argues that companies constantly evolve strategies to reduce their fixed and variable cost to remain competitive in the market.

Rising crude oil costs increase the diesel cost which is an important component to decide about the cost of servicing to the customers. Waste Management Inc. is one such company that is in the business of garbage management across many parts of the US. The company runs its trucks on diesel and it had to spend $169 million more last year toward the increased cost of diesel. To save on the ever-increasing burden toward the fuel cost, the company decided to buy new trucks that operate on cheaper natural gas.

The extra burden on fixed-cost is $30,000 when compared with diesel models of trucks yet it is worth considering because the company envisages a saving of $27,000 or more in a year on fuel per vehicle. The company has plans to replace almost 80 percent of the trucks in the next five years. It is worth realizing the cost-economics of natural gas that has changed the market dynamics recently.

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