John Diaz owns Pacific Electric,a large electrical contracting firm that provide

Question

John Diaz owns Pacific Electric,a large electrical contracting firm that provides services to building construction projects. The company has 2,000 employees and operates in three western states. Recently the company experienced large losses due to a downturn in the economy and a slowdown in construction. John thinks the losses were particularly large because his company has too much fixed cost. Expand on John's thought. How are the large losses related to fixed costs? Identify a way that John can turn potential fixed costs into variable costs.

Explanation / Answer

a) The company is currently having 2,000 employee on payroll, these are fixed costs and doesnot have a relation with projects, hence the lossess are related to the salaries(fixed cost ) of the employees.

b) The potential fixed cost can be turned into variable cost, by hiring job workers/third pary contract workers instead of permanent staff, so that only the required number of contract staff can be deployed based on the actuals requirements of the project, hence incurring lesser expenses on the salaries.

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