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Cost Motivation At Home Depot

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In the first half of 2007, Home Depot saw a dropped in sales of 3% which had a devastating effect on their net profits which witnessed a 21% decline. The difference in cost behavior structuring established at Home Depot is the culprit behind the inconsistency between sales and net profits deterioration.
Unfortunately for Home Depot a majority of their cost structure is comprised of fixed asset cost therefore, changes in sales result in more volatile to revenue. The fixed asset structure effects the operating leverage and having an increased fixed asset cost proportion increases leverage and volatility. Therefore, if sales increase Home Depot would realize gains quicker than if they used more variable cost. In contrast, as in the case of
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