The Lawn Company provides commercial landscaping services in San Diego. The firms owner wants to develop cost estimates that she can use to prepare bids on jobs. After analyzing the firms costs, she has developed the following preliminary cost estimates for every 1000 square feet of landscaping: Direct Materials $390 Direct Labor (5 hours at $11 per hour) $ 55 Overhead ($18 per direct labor hour) $ 90 Total cost per 1000 square feet $535 She is quite certain about the estimates for direct materials and for labor. However, she is not as comfortable with the overhead estimate. The estimate of $18 per direct labor hour was determined by dividing the total overhead for the 12 month period ($1,296,000) by the total direct labor hours (72,000). By using a regression of overhead on direct labor hours the following cost formula was obtained: Overhead = $52,400 + $9.25 DLH

1. How far can a manager go into changing the microeconomics of a firm (i.e. Fixed to Variable costs ratio). Is there an industry effect that determines that ratio?
2. Amazons Inc. success can hardly be questioned. How does Amazons strategy relate to this question?