How Fixed Costs Can Double Up Quickly

If your Antares vending business is growing, and you end up adding more routes over time, it makes sense to start treating expenses such as route labor, vehicle costs and depreciation costs as variable expenses. They are only fixed expenses in the short term. If you have a route person working and servicing a substandard account, then you will have to hire a new route person much sooner when a good account comes along. This would also apply to vending equipment.

As an experienced Antares vending operator you should understand that if you keep equipment employed in non profitable accounts, the equipment will not be available when a profitable account comes along. This means that you will have to needlessly invest in new equipment. These expenses should be eliminated in determining if a particular account should be resigned, because they are step-variable expenses, with frequent steps.

The average Antares operator can forget to deduct the direct labor cost of order picking in the warehouse, cash processing and the labor used for data processing attributable to the location, as the expenses that will disappear. You could argue that these are fixed costs for your Antares vending business. However if any of these functions employ more than one person, you should be able to reduce the hours of a second employee.

After adding up all the direct costs that would disappear, you should then give up the location if the revenues fail to cover the direct costs. This problem would become a little more difficult to solve if the revenues cover the direct costs but do not fully cover the fixed or so called overhead costs that have been allocated to this location.

In truth, the fixed costs are really fixed, when you give up such a location. On top of this, whatever contribution the location makes toward covering the fixed costs will disappear from your Antares business bottom line.

It is very important that you understand that the dynamics of allocating fixed or overhead costs to individual location statements. Fixed or overhead costs are a moving target in most businesses.

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