The video shows the production process of making a latex condom that is used for protection during sexual intercourse. From the video, there are variable costs and fixed costs that are involved during the manufacturing process. The latex rubber, which is a raw material in the manufacturing of condoms, is an example of variable cost. Another example of variable cost is packaging since it is direct labor in the making of condoms. They are the variable costs because they vary in direct proportions to levels of outputs. They decrease or increase depending on the volume of the company’s production. These variables rise whenever there is an increase in production and fall with the decreases in production.
How the Manager can augment variable costs while reducing the fixed costs
In the making of condoms, the Manager can increase the variable costs at the same time, decrease the fixed costs. This can be done by carrying out the subcontract of a component to a supplier. It should be done per unit terms in an attempt to avoid the purchase of a machine that has a high fixed depreciation cost.
fixed costs of making the Condom
The fixed costs of making latex condoms are employee salaries and rent because they remain constant regardless of production output. This implies that they are independent of production, so whether the company makes sales or does not make sales, the rent and the employees’ salaries will remain the same. The firm must pay its rent for the smooth running of its business operations regardless of the volumes of sold or manufactured products. Ideally, the making of condoms attracts increased variable costs; they include; direct labor and raw materials. These variable costs determine the production output of latex condoms.
How the Manager can reduce the variable costs as well as increase the fixed costs.
In this case, the Manager needs to change a compensation plan for its sales force to fixed salaries instead of percent of sales dollars. The video on the making of condoms suggests that employees are paid in terms of the commission made through the sales of condoms.
Therefore, the company experiences increased variable costs leading to lower profits made from the sales. From the video, almost the entire direct labor of manufacturing is done by robots. This way, the Manager has done great in substituting hourly wage employees by the use of robotic machines that are aimed at making decreasing the variable costs while increasing the fixed costs. Moreover, the Manager in this scenario needs to hire a subcontractor who will be doing customer repair visits on a yearly basis instead of a per-visit basis. The video of condom production suggests that many condoms are rejected before packaging to ensure that the packed ones are safe for use. The ones rejected are those that do not meet the standards of safety. This implies that the company ca experience loses. Therefore, the Manager needs to be keen to ensure that the variable costs are decreased at any point in production while fixed costs are increased.