Claire's Antiques AnalysisMaggie, thank you for your email and your interest in reducing fixed costs for Claire's Antiques, which in turn would increase the profits. To answer your questions, I think we first need to discuss what the differences are between fixed costs, variable costs, and semi-variable (mixed) costs. Based on the different types of costs, we can then look at what current costs Claire's has that fall into each category. Then we can discuss better whether or not it is a good idea to convert fixed costs into variable costs. Variable costs, for a manufacturing company, are those costs that increase or decrease as production increases or decreases. If production increases, variable costs will also increase; if production decreases, variable costs will decrease. For Claire's Antiques, examples of variable costs would be production labor, raw materials, and manufacturing overhead. Examples of manufacturing overhead would be services used in the manufacturing plant and oils and lubricants used in 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: selling and administrative costs, rent and/or mortgage on the manufacturing facility, and depreciation. Semivariable, or mixed, costs are costs that have both fixed and variable costs. An example of a semi-variable cost would be if Claire's rents its delivery trucks and the lease includes a mileage rate. The monthly rental would be considered a fixed cost, but the mileage rate would be a variable cost. (Hofstrand, 2007). In most cases, fixed costs are generally higher than variable costs and can eat up a large amount of profits. For this reason, some companies may consider converting fixed costs to variable costs. How can fixed costs be legally converted into variable costs? The only way to convert fixed costs into variable costs is through outsourcing. The key to outsourcing is determining which parts of the fixed costs are attributed to the company's skills and which are considered repetitive and simple. A company would like to keep the parts that add greater value to the company, such as expertise, and outsource the simpler, more repetitive parts. For example, Claire's Antiques could outsource sales calls to an external call center that would charge a fee for each call received.