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Exxon-Mobile and Chevron are similar petroleum companies that share three very important variable expenses. These expenses include research and development, sales commissions, and raw materials. These are essential in this industry as it is critical to be on top of the latest technologies and processes to remain viable in the production and distribution of petroleum products.
According to the Annual Reports from Exxon/Mobile over the past three years R&D has been the third largest variable expense for the company. It accounts for over 15% of the corporate expenditures and has only increased, by an average of 6%, each of the past three years. In fact, this is one of the few variable expenses that Exxon/Mobile has increased over the past years as they attempt to streamline costs to increase margins. The reason for this is the importance of this factor in the industry. Research must constantly be used to introduce new variations on products and new product lines all together to keep the company running at pace with the other major corporations in the field.
Chevron, according to their annual reports, has followed much the same pattern as Exxon. R&D has remained a top 4 expenditure for the corporation in each of the past 3 years and accounts for nearly 14% of total expenditure. Chevron, much like mobile, has also increased R&D in the past few years as they attempt to improve products and create new lines in order to maintain their position in the industry.
Another essential variable cost of both Exxon/Mobile and Chevron has been sales commissions. Exxon/Mobile and Chevron, according to each company’s annual reports, have had their sales commissions rise in each of the past three years along with their total sales. Both companies seem committed to pushing sales commissions in order to increase their sales. In fact, Exxon/Mobile mentions explicitly that they are “increasing our sales force to better provide for our valued customers” which would seem to indicate that they believe the addition of more commission based expenses will result in better profitability for the company as a whole. Often, corporations need to make such decisions to basically shift expenses from one sector of the company to another in order to maximize the profits from each penny spent.
Finally, being providers of petroleum as their main source of profits, both Exxon/Mobile and Chevron have very large raw material expenses. According to the annual reports of both companies, raw materials have been the largest variable expenditure in each of the past three years. This expense seems to vary directly with profits which would seem to be logical. As the company sells more product it makes more profits but to sell more product they need more raw materials to use and produce the product they will offer for sale. Both companies seem to be striving to cut costs where possible and streamline operations but raw materials will remain high and essential to the production of each company.
As with every company one of the largest issues facing both Exxon/Mobile and Chevron is the best way to eliminate as many expenses as possible while maintaining the level of profits or possibly even increasing them. These companies have both addressed this issue prominently in their annual reports for recent years. They seem to both be planning on eliminating as many smaller peripheral expenses as possible while maintaining, or increasing in the case of Exxon/Mobile sales labor, the primary expenses that most contribute to the profits of the company.
Exxon/Mobile 2004,2005,2006 Annual Reports
Chevron 2004 Annual Report
Chevron 2005 Annual Report
Chevron 2006 Annual Report