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Inefficient Allocation of Variable Costs at Vertical 1 1 Inefficient Allocation of Variable Costs at Vertical 1 Jacob Maiwald Florida Institute of Technology Managerial Economics BUS 5421 Dr. Lester Hadsell 1-12-23 Discussion Post #1

Inefficient Allocation of Variable Costs at Vertical 1 2 In my time working for a construction company working as a crew member I had some costs that could have been avoided to increase the growth of the business. At this time in the company's life, our crews were set out to cover fire damages, water damages, and cosmetics in home and in retail setting construction. As we learned in the reading this week, there are fixed costs which add to total expenses in both economics and accounting profit outcomes. I will be addressing the fixed costs related to labor at this company and issues I felt need amending to best bring growth into this business. For a week straight there was a crew of one Project Manager, and 3 crew members to a site where the project had 2 months until completion. The company CEO followed the advice of the Project Manager, and thus the CEO allowed 3 crew members with the PM. As it was, there was not worthwhile work to do in our group as we were cleaning the grounds to make sure that if the contract purchaser had shown up to the grounds they would have no worries about the cleanliness of the site. During this same time span the CEO made the decision to not accept a million dollar contract to renovate a large section of apartments due to lack of resources available for reallocation. The cost of keeping the crew members cleaning the first bid was $15x40hrs. for 1 crew member and $16x40hrs. for the remaining 2 crew members. To solve this problem I ask myself 3 questions. Who made the mistake? The PM made the mistake by misallocating resources to his project without regard to the needs of the company. Did the PM not have enough information or the right incentives? The PM did not have enough information as the CEO had not let him know about the pending bid on a very large contract. As a consultant working on behalf of Vertical 1, I recommend that the CEO better communicate the needs of resources from a High-Value use first to Low-Value use last, and increase the flow of information to those in charge of requesting use of resources. Had these problems been taken

Inefficient Allocation of Variable Costs at Vertical 1 3 care of before the use of a consultant, there would have been growth in the revenue of the company. References Froeb, L.M. et al. (2023) ‘3’, in Managerial economics: A problem solving approach . Boston, MA: Cengage.

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