FedEx Article Response 1. Capacity is basically the amount that something can hold. This may refer to the amount that a manufacturing company can produce, or the amount that a warehouse can store. Capacity related costs are based on the amount acquired versus the amount used in a company. Capacity costs are a fixed cost. Items and costs that FedEx incurs include a wide range of variables. Certain employees’ salaries may be considered in this, for example executives crucial in maintaining business. Trucks and shipping equipment, and rent or lease expense for buildings would also fall into this category. Expenses such as advertising may also be a part of this if the company is signed to a contract with a billboard or something similar. All of these items are necessary for FedEx increasing or maintaining their capacity to satisfy customers.

2. Many capacity costs are unable to be cut back because they are fixed costs. Cutting back on these costs may result in shutting down business or other extremes. I think FedEx would most likely start by cutting back on the number of trucks and drivers they have if the demand is not there to require the same amount as before. They may even sell some of their warehouses or other buildings if it comes down to it. I think there are some costs that cannot be cut without completely changing the business, or without going out of business all-together. Some fixed costs will need to remain if the company is to continue on.

3. The cost of capacity supplied is the amount that a firm is producing at a given point in time. This may be the amount that they are supplying to customers, or the number of units they need to fill orders. The cost of capacity used is the amount of a firm’s given capacity that they are using. For example, a firm may be able to produce 10,000 units at their maximum capacity, but they are only producing