Analysis of operating cost variability in selected sectors of the Czech Republic for the period 2007–2010

Abstract

One of the major approaches to the analysis of economic performance is the concept of variable and fixed costs. This concept analyzes the relationship between corporate costs and profits. The tightness of this relationship (i.e. the costs variability rate) is an essential element of cost and profit management in different periods of a business life cycle. The type of business activity (production, trade and services) has a significant influence on the relationship between costs and profit (in particular of the operating type). This relationship can be examined mainly on the basis of the financial development of economic sectors. This article deals with the relationship between operating costs and operating profits in selected business sectors. For the analysis, the concept of synthetic and analytic cost model is used. The tightness of the relationship between operating costs and operating profits is determined by the method of correlation analysis. The quarterly data on the development of the Czech economy for the period of 2007–2010 represent the basis of the analysis; this period includes a phase of growth, of decline and of stagnation. The analysis of the costs variability allows us to understand the behavior of the “average” companies in various sectors in creating their costs and their management with the aim of achieving a profit. The results of the analysis show that the most companies are able to “control” their operating costs significantly in the relation to realized outputs; at the same time this means that a substantial part of the operating costs has a character of variable costs.

Keywords

• cost models
• variable costs
• fixed costs
• economic performance
• economic sectors
• operating leverage