The Polaris Service Department is part of the Polaris Conglomerate that manufactures sells and offers services to personal computers and servers, both individual and corporate clients. The Service Department is a new department created two years ago from several clients' requirements that needed an extended warranty for its products and new clients that have the existing hardware but with a support from Polaris .
The Polaris Service Department has although fixed resources, mixed resources with the other departments of the company and variable resources according to the service requirements of the clients. Considering that the Service Department represents 29% of the revenues of the company is necessary to have a separated cost calculation for the Department.
The fixed resources, which are from exclusive use of the Polaris Service Department and its use rate is 100% for all the fiscal year, are:
Warehouse: The Service Department uses 80 m2 of the total area of the company, that is, 250 m2
Employees: Two employees are he fixed staff of the Service Department.
The variable resources, which are from exclusive use of the Polaris Service Department and its use varies according to the department sales are:
Commissions and fees: The Service Department pays a percentage of the sales to their employees according to the sales volume of the month. This amount sums the fixed cost of salary.
Spare parts and consumables: The requirement of spare parts or consumables varies according to the number of orders of the Service Department.
Software licenses and advisory: When the service requirements overpass the capacity of the Department, the company leases new software and advisory to cover the new requirements.
The mixed resources are shared with the other departments of the company as:
Administration Staff: Those are the people who are the responsible to administer all the resources of the company. Their cost must be shared by all the departments of the company.
Security: The security costs apply for all the warehouse and equipment of the company.
Transport, Logistics and Communications: Those are the necessary services for the transportation and communications of the company.
A growth in 25% in the revenues of the Services Department will create the necessity to charge a higher "use ratio" of mixed resources to the Services Department balancing the costs of the Services Department against the products and services of the other departments of the company. A "fair share" of the mixed resources to the Departments of more revenues helps the other departments to improve its costs transferring costs to a better performance Department. The risk is to maintain that policy without making improvements to the less profitable performance .
The costs will change changing the "use ratio" of the mixed costs increasing the "use ratio" to the costs of the Service Department.
With the previous information of cost and a potential increase in revenues of the Service Department is possible to calculate the variation in the overall revenues of the company. Considering that one year the Service Department represents the 29% of the revenues of the company. With a 25% increase in the revenues of the Service Department and the assumption of 0% increase in the rest of the departments, the contribution to the revenues of the Service Department to the company increase to 33,8% of the total contribution of the company. That scenario is unrealistic considering that an increase in the revenues of the Service Department has an influence in the other departments, due to the requirements of hardware and software.
Finance, F. (2015). Variable Costs and Fixed Costs. Recuperado el 23 de 01 de 2016, de http://economics.fundamentalfinance.com/micro_costs.php
Wilkinson, J. (2015). Variable vs Fixed Costs. Recuperado el 23 de 01 de 2016, de http://strategiccfo.com/wikicfo/variable-vs-fixed-cost/