Unlike variable costs, fixed costs of resources (such as for line supervision) cannot be
quickly and easily changed to match the resources needed or used. Over time, however, managers
can take actions to reduce fixed costs. For example, if the X5 line needs to be run for
fewer hours because of low demand for X5s, BMW may lay off supervisors or move them to
another production line. Unlike variable costs that go away automatically if the resources are
not used, reducing fixed costs requires active intervention on the part of managers.
Do not assume that individual cost items are inherently variable or fixed. Consider
labor costs. Labor costs can be purely variable with respect to units produced when workers
are paid on a piece-unit (piece-rate) basis. For example, some garment workers are
paid on a per-shirt-sewed basis. In contrast, labor costs at a plant in the coming year are
sometimes appropriately classified as fixed.
For instance, a labor union agreement might set annual salaries and conditions, contain
a no-layoff clause, and severely restrict a company’s flexibility to assign workers to
any other