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Converting Fixed Costs to Variable

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One member of your team emailed you and stated that she believes Claire's Antiques should work to convert the fixed costs to variable costs. She wants to know it this is a good idea. Why or why not if not, then when would it be a good idea? Reply to your friend with the answers to her questions in you reply, identify the types of costs Claire's Antiques would probably incur that are fixed.

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Solution Summary

305 words, with a reference, explain how to identify types of fixed costs and explain if the conversion is a good idea.

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Variable costs are costs which changes directly in proportion to the level of sales in dollars or units sold. For example direct material, direct labor, sales commission, bonus etc.
Fixed costs are those costs which remain the same irrespective of the production or sales level.

Thus Claire's can have fixed expenses such as interest, rent, insurance, depreciation, salary, and other fixed overheads.

It's a good idea to convert fixed costs into variable costs as ...

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