Review Financial Statement of Nestle

Review: FINANCIAL STATEMENT OF NESTLE 1

Review:Financial Statement of Nestle

Review:Financial Statement of Nestle

Nestlecompany is one of the most dynamic and profitable business entitiesin the world. It is a food processing company that has subsidiariescovering all the continents of the world. It has been able tomaintain a stable financial income over the year which is a keyindicator of its consistent growth. The company’s ever increasingsales volume have led to an increase in its production costs whichcomprise of fixed and variable costs. Reviewing Nestlé’s recentconsolidated financial statements for 2012 and 2013, the company madegeneral improvement in its sales volumes worldwide due to itsincreased dominance in the food production market. As a result, itsfixed and variable costings also increased. Ironically, the companyhas been efficient in cutting costs. As much it has increased itsrevenue streams by more than 22% in the last ten or so years, it hasbeen able to control its expenditures.

Fixedcosts are described as costs that are not altered by a company’ssales volumes. In this case, Nestlé’s fixed costs include directlabor salaries and other employee benefits, acquisition costs (forpurchasing existing business), leases, tax returns, and leases andrent. Nestlé’s fixed costs may tend to increase with theambitious expansions of the company globally. However, they are notaffected by the general sales volumes.

Variablecosts: since the company is in constant expansion globally, itsvariable costs tend to increase due to increased production. Costsinvolved with process such as raw material inventories, labor, leasesor rent, and work in progress are included in this category. Laborcosts feature can be classified as semi-fixed since they may appeareither as variable of fixed costs. As a variable, only the overtime,bonuses or incentives of the employees is covered. Due to increasesdemand for its products, sometime employees may be requested to workovertime.

Variablesare known to affect fixed costs in some instances. For example, whenthe labor cost increases due to employees working overtime orawarding of incentives and bonuses, the general labour cost capturedunder fixed costs will tend to increase. This is a clear example ofthe effect of a variable cost on the increase of a fixed cost.

References

Baumol,W. J., &amp Willig, R. D. (1981). Fixed costs, sunk costs, entrybarriers, and sustainability of monopoly. TheQuarterly Journal of Economics,405-431.