Cost behavior analysis in accounting and business

¶ … Behavior

This particular analysis will rely on the financial data of FedEx and UPS for the financial years ended 31st May 2013 and 31st May 2012; and 31st Dec 2012 and 31st Dec 2011 respectively.

FedEx and UPS Comparison -- Selected Balance Sheet and Income Statement Items

FedEx

UPS

(in millions)

(in millions)

% Change

(in millions)

(in millions)

% Change

Revenues

Cost of Goods Sold

Accounts Receivable

Accounts Payable

Inventory

From the figures above, it is clear that FedEx outperformed UPS on a number of fronts. This is particularly the case with regard to the revenues the company managed to rake in, in comparison to those of UPS. Within the two years under consideration, FedEx was able to increase its total revenues by of 3.77%. When it comes to UPS, its financial statements within the last two years show a revenue increase of 1.92%. It is therefore clear that compared to UPS, FedEx's sales are increasing at a faster rate; meaning that the latter company's business is expanding at a faster rate than that of the former. This is good news to both the management and investors -- particularly if the said trend is maintained going forward.

Although FedEx's C.O.G.S registered significant increase (in relation to UPS's cost of sales) within the period under consideration, the said increase can partly be justified by the increase in sales. This is particularly the case given that included in C.O.G.S. is direct labor and other costs incurred in the generation of the additional revenue. Essentially, a company's cost of sales should have a slower rate of growth than its sales. The significant increase in accounts receivable with regard to FedEx is a direct consequence of the increase in sales. Sales made on credit generate accounts receivables. It is therefore expected that as an asset, accounts receivable would increase as a result of increase in sales.