McDonalds Cost Structures Assignment Example | Topics and Well Written Essays - 1000 words

McDonalds Cost Structures - Assignment Example The franchises have to pay their own occupancy costs which consist of rent, property taxes, insurance and maintenance costs. Certain corporate general and administrative expenses are fixed too which comprise of office support costs in areas of training, legal, supply chain, finance, information technology and human resources. Variable costs which vary with the level of sales include a major chunk of food and labor costs. Sales staff and countermen whose salaries are based on the number of customers they serve are also variable costs for the company. Also, packaging costs, the paper material, employee benefits, selling and general expenses are variable charges. Certain corporate general costs are variable such as training and restaurant operations. As for the fixed costs, the factors that affect them are mostly the market changes. McDonald's needs to spend more on advertising and promotion when they see that market competition is getting fiercer and bitter. Moreover, in order to retain the higher level experienced staff, they need to raise the salaries of their staff and hence payrolls and compensation of management level employees increase. However, in times of recession like the major financial crisis, all fixed costs also dwindled down. The royalty charges or franchise fee is mainly fixed at a certain percentage after a 25% down payment initially unless the franchisor wants to alter the fixed rate for some reason. The variable costs are more directly responsive to changes in the level of sales. The main factor affecting the variable costs is the demand and the number of sales that McDonald's has. The more people want to eat McDonald's, the higher will be the food supplies costs, the packaging and paper costs, the more the number of counter employees to serve the customers, the higher the selling expenses and other general expenses.