Maintenance and transport costs, fixed or variable?
FC VC items
Overview of answers
Upvotes
Best answer
This depends on the case context and cannot be answered in general, e.g.
- Maintaining an aircraft once a month independent from flight hours => fixed; maintaining manufacturing equipment every 1000 hours of operation => variable.
- Transporting finished goods to retailers => variable; transporting your trade fair booth (marketing) from one fair to the next => fixed.
To prepare for these type of questions, it's pointless to memorize factoids without fully understanding the underlying principles. To succeed in a case, you'll need to build a business intuition that will allow you to make these decisions in a case, dependent on the context.
Was this answer helpful?
Completely depends!
Remember, variable costs are NOT defined as those that change over time.
Variable costs are costs that change when one unit of good/service produced changes.
SG&A is the building and maintenance of assets. Assets are fixed costs.
However, maintenance for anything that needs it for each addition use is variable (oiling, repair worker hours, etc. etc.)
Same logic applies to transportation costs! Transport of oil through pipes is fixed (build the pipeline and then just pump oil through). Transport of oil through tankers/trucks would be variable (you need x more for x additional amount of oil produced)
Was this answer helpful?
- Transporation and Warehouse Operations are Variable Logistics Costs
- Maintenance is Variable Industrial/Overhead Cost and so are Utilities, Raw Materials etc
- Warehousing (rental, lease) is Fixed Cost
There can be nuances and definitions for certain companies and industries but for the purposes of case interview you are safe with above. Real life can be tricky which will require definition clarification and due diligence.
Was this answer helpful?
Hello !
Depends on the case, can you provide the full prompt?
Cheers,
Clara
Was this answer helpful?
Both depend. Maintenance depends on whether it is a services model or not (e.g., aircraft engines). Transport cost (not sure whether you are referring to logistics or travel expenses) can in theory be both too but typically volume dependent variable costs.
Was this answer helpful?
Hi,
It depends on a particular industry, but in the majority of industries it would be variable or semi-variable as well.
I would suggest that you should study different cost classification methods for your interview as FC/VC is not always the best approach.
You can think about the following classifications:
- by function (production, Non-production, etc)
- by nature (direct; indirect)
- by element (labour, material, expenditures)
- by business line (retail business cost, corporate business cost, etc)
- by OPEX; CAPEX
Also don’t forget to review Activity Based Costing methodology which is highly useful for an interview.
Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.
Best,
Anton
Was this answer helpful?
Related Cases
The municipal utility Hamburg Energized is a local energy retail (power and gas) and distribution grid company active in the city of Hamburg. The majority of shares of Hamburg Energized is held by the city itself. As the distribution system operator of Hamburg, Hamburg Energized is responsible for t
The municipal utility Hamburg Energized is a local energy retail (power and gas) and distribution grid company active in the city of Hamburg. The majority of shares of Hamburg Energized is h
... (Open whole case)
33.7k
Times solved
Intermediate
Difficulty
Our client is Unified Health, a health care company in the US. It insures patients and provides health care services. Employers pay a premium to UH for their employees and UH covers all necessary medical costs. UH has 300,000 patients enrolled. It has 300 salaried physicians covering 6 health center
Our client is Unified Health, a health care company in the US. It insures patients and provides health care services. Employers pay a premium to UH for their employees and UH covers all nece
... (Open whole case)
20.0k
Times solved
Intermediate
Difficulty
Our client, Central hospital, is a 350-bed hospital based in a medium-sized city. The company has normally seen strong financial results with a 1-4% operating gain each year for the last five years. However, this year they are projecting a $14 m operating loss and the situation is expected to w
Our client, Central hospital, is a 350-bed hospital based in a medium-sized city. The company has normally seen strong financial results with a 1-4% operating gain each year for the last fiv
... (Open whole case)
13.8k
Times solved
Intermediate
Difficulty
Expert case by Ian
Style:
Problem definition: Our client is Korean Car Parts (KCP), a multi-national original equipment manufacturer (OEM) of car parts based in Korea. They've recently seen a decline in profits and have brought us in to understand how to address this falling profitability.
Problem definition: Our client is Korean Car Parts (KCP), a multi-national original equipment manufacturer (OEM) of car parts based in Korea. They've recently seen a decline in profits and have brought us in to understand how to address this falling profitability.
... (Open whole case)
10.3k
Times solved
Intermediate
Difficulty
Expert case by Ian
Style:
Sky China, a government-backed Chinese airline, has recently seen profits plummet due to COVID-19. Profits are down 80% in the months of February and March, but are showing early signs of a rebound in April. They've brought you in to first investigate what can be done immediatedly to prevent he
Sky China, a government-backed Chinese airline, has recently seen profits plummet due to COVID-19. Profits are down 80% in the months of February and March, but are showing early signs of a
... (Open whole case)
7.0k
Times solved
Intermediate
Difficulty
Bain | passed >15 MBB interviews as a candidate
196
Meetings
6,428
Q&A Upvotes
28
Awards
30 Reviews