Question

The president of Bright Company tells you that he sees a dim future for his company. He feels that his hands are tied because fixed costs are too high. He says that fixed costs do not change and therefore the situation is hopeless do you agree with his assessment please explain why or why not that you agree.

Answer 1

We do not agree with this statement of president of bright company.

Fixed costs are the period costs of a company that does not change with the level of production.

As per the definition of fixed costs, they can not be change as per level pf production but they can be change by other means like reducing the capacity installed, renting a small place etc.

For example_ if bright company currently had capacity of 100000 units but using only 30-40% capacity it can take up plan to reduce the space and installed capacity which definitely deacrease the fixed costs by significant numbers.

There are other many ways also to reduce the fixed costs of a company hence we did not agree with the point of view of president that situation is hopeless.