Answer
A manager can increase variable costs while decreasing fixed costs by implementing a just-in-time inventory system. This system reduces the need for large, fixed inventories (lowering fixed costs associated with storage) but increases variable costs due to more frequent ordering and shorter production runs. While the decrease in fixed costs may seem appealing, the emphasis shifts to efficient operations and reduced inventory carrying costs. This approach requires tighter supply chain management but can lead to cost savings, improved cash flow, and increased flexibility, which can be particularly beneficial in industries with rapidly changing customer demands.
Work Step by Step
A manager can increase variable costs while decreasing fixed costs by implementing a just-in-time inventory system. This system reduces the need for large, fixed inventories (lowering fixed costs associated with storage) but increases variable costs due to more frequent ordering and shorter production runs. While the decrease in fixed costs may seem appealing, the emphasis shifts to efficient operations and reduced inventory carrying costs. This approach requires tighter supply chain management but can lead to cost savings, improved cash flow, and increased flexibility, which can be particularly beneficial in industries with rapidly changing customer demands.
