12 N. H. Agri. Experiment Station [Bulletin 251 



sales is accompanied by an average increase of S.0184 in fixed costs 

 per dollar of sales. Likewise, a $.03 increase in gross margin per dol- 

 lar of sales is accompanied by a general increase of $.0115 in fixed 

 costs per dollar of sales. 



Summary of Fixed Costs 



Because fixed costs are largely made of items which are not subject 

 to change the only sure way of reducing the load is to increase the 

 volume of business. This is impossible to accomplish in many sections 

 where competition is keen. The most efficiently operated stores are 

 able to do $100,000 worth of business with an investment of approxi- 

 mately $15,000. Too frecjuently, capital has been invested in build- 

 ings which have a capacity several times larger than necessary. Such 

 instances of over-expansion represent an economic waste to the com- 

 munity. Occasionally one dealer will buy out another, thereby doub- 

 ling his volume with a small increase in overhead. In other instances, 

 the stores have been closed or changed over to another kind of business. 



Those stores having satisfactory but not elaborate buildings and 

 equipment equal to the needs of their business are in an advantageous 

 position to meet competition. On the other hand, where only 14 or 

 % of the building si)ace is utilized, such conditions are certain to 

 throw the operating ratios out of balance. Either the return on the 

 capital invested in buildings is low as competition keeps the gross 

 margin to a minimum, or if the return on the capital in such build- 

 ings and equipment approaches normal, the gross margin has usually 

 been raised above the average. In many instances, the buildings were 

 erected at a time when the volume of business was much greater and 

 also before goods were sacked and sold in mixed cars so that more 

 storage space was necessary. Since these over-large buildings are 

 still in use their value should be figin-ed on the basis of earning 

 power in relation to the business transacted and not at the cost of 

 replacement. Undoubtedly, if these stores were to be replaced, the 

 amount of capital required would be much less than their present 

 book values and the return on the capital invested in them would 

 then be commensurate with the business. 



Referring to Tables 4 and 22, it will be seen that Store 192 has fixed 

 costs of over $.05 per dollar of sales; and has the smallest sales of 

 any in the group in relation to fixed cost expenditures. The manager 

 of this store has an accurate bookkeeping system. He realizes his 

 predicament and has raised the gross margin on sales to prevent op- 

 erating at a loss. He states that it would be possible to handle twice 

 the amount of grain with his present investment. Although this man's 

 customers might object to the increased margin, the question arises: 

 would they be willing to go without the convenience of a local grain 

 store in the community and obtain the grain from more distant points 

 if the local dealer should go out of business? 



There are many grain stores where the opposite condition is true. 

 Store 6 is a good example of more favorable circumstances. It has 

 fixed costs of approximately $.015 per dollar of sales, because the 

 fixed costs are low and because sales are exceptionally high. 



