Question

Give an example how you turn potential fixed costs into variable costs

Answer 1

How you turn potential fixed costs into variable costs ?

Fixed costs are expenses that remain the same and do not vary with production or sales levels. Examples include rent, property, converting fixed costs to variable costs, taxes, insurance, and advertising, all which remain constant regardless of the activity. Variable costs are expenses that change in proportion with activity or volumes, or which directly depend on the volume of sales or production.

The ways of directly converting fixed costs to variable costs are many. Some such ways include:

• Increasing variable pay such as production incentives and sales commission and decreasing basic fixed pay.
• Outsourcing administration jobs on a percentage or per-work basis
• Converting infrastructure to a pay-per-use basis, such as contract manufacturing.

An example on turning fixed costs into variable cost is by outsourcing the enterprise which decreases fixed costs (i.e., equipment expenditures, information technology, employees' fixed salaries) by turning these costs into a variable cost (i.e., the purchase price paid to the outside industry).Which means a company does not have to own a factory just because they want to produce, assemble, store, ship and build your product. Outsourcing companies and contract manufacturers are ready to do all or some of the above for you.They charge either for the space you take up or the functions you ask them to do. Most will work out a deal with you to charge a percentage of your billing, making this a variable expense.