Costing
Linda Green
Colorado Technical University Online
Professor James Traister
ACC350-0803B-09
September 8, 2008
Maggie,
Thank you for your e-mail and your interest in reducing fixed costs for Claire’s Antiques, which would in turn increase profits. To answer your questions, I feel that we first need to discuss what the differences are between fixed costs, variable costs, and semi-variable (mixed) costs are. Based on the different types of costs, we can then review what current costs does Claire’s have that fits into each category. Then we will be better able to discuss whether or not it is a good idea to convert fixed costs to variable costs.
Variable costs, for a manufacturing company, are those costs that increase or decrease as production increases or decreases. If production increases, then variable costs will increase; if production decreases, variable costs will decrease. For Claire’s Antiques, examples of their variable costs would be manufacturing labor, raw materials, and manufacturing overhead. Examples of manufacturing overhead would be the utilities that are used in the production facility, and the oils and lubricants used in the machinery. Fixed costs in a manufacturing company are those costs that remain constant regardless of the level of production. Examples of fixed costs for Claire’s Antiques are: sales and administrative costs, rent and/or mortgage on the production facility, and depreciation. Semi-variable, or mixed, costs are costs that have both fixed and variable costs. An example of a semi-variable cost could be if Claire’s leases their delivery trucks, and the lease includes a mileage fee. The monthly leas ...