Cost Structure

Topics: Costs, Cost, Variable cost Pages: 1 (332 words) Published: October 9, 2008
Like any large business, WaMu relies upon a pre-determined cost structure to account for and control expenses. WaMu primarily realizes transaction costs, fixed costs, and variable costs. Because WaMu doesn’t provide free services per-say, the sunk costs of the structure are fairly minimal.

Transaction costs constitute the next smallest portion of WaMu’s cost structure. WaMu is free of infrastructure based transaction costs like those that smaller retailers who use point of sale services might incur. The primary transaction costs are the commissions paid to loan originators, and per-file completion bonuses paid to loan processors and underwriters. An interesting point lies in the fact that the transaction cost associated with the commission of a loan originator effectively shifts cost from the variable cost category where payroll is typically accounted for.

The majority of WaMu’s cost structure is comprised of fixed and variable costs. With expansive retail and regional office locations, the real estate related costs for the company constitute a majority of the fixed costs. Recently WaMu has aimed to reduce its fixed cost by closing 17 stand-alone home loan centers (Tampa Bay Business Journal, 2008). The closure will also indirectly reduce variable costs as it reduces approximately 3000 jobs, and the energy costs associated with the locations (Tampa Bay Business Journal). ü

Payroll accounts for WaMu’s largest variable cost, followed by its energy costs. As a service provider, one would think WaMu doesn’t suffer fluctuations in material costs. This is not entirely true. The basis of the mortgage lending business is to lend money at a higher rate than its current value in the market; this produces a premium or profit. In this instance, WaMu’s materials cost is the current rate of funds upon which they base their lending decision. If credit that is used to fund loans before they are privatized and sold gets more expensive, WaMu experiences the...
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