The driving force behind all companies is sales. Without sales, there is no incoming money and therefore no company at all. Thus, the first aspect of operations is understanding sales. Sales for CRU are generated by renting computers to companies or individuals for a specified period of time for them to return the units afterward. Last year, an average week generated 1,000 unit rentals at $30 per unit. The average rental time was 8 weeks. This means that at any given time there were 8,000 units rented out to customers, generating around $240,000 per week (fig. 1). Comparing this to the decreased demand of 600 units per week generating $144,000 (fig. 2) in revenue, Richard Sarkis’ concern is understandable. Not as clear is how the new weekly demand of 1,400 units generating $256,000 per week in revenue (fig.3) was hurting profitability even further. The answer lies in the other half of operations, known as costs.
Variable costs are expenses that are directly associated with the sale of a good. When variable costs are subtracted from sales what is left is known as the contribution margin which gives an idea of how profitable your sales are. CRU’s variable