Question

1. Briefly describe an organization with which you are familiar. Describe a situation when a manager in that organization could use cost behavior information and how the manager could use the information.
2. Compare discretionary fixed costs to committed fixed costs. Think of an organization with which you are familiar. Give two examples of discretionary fixed costs and two examples of committed fixed costs which that organization may have. Explain why the costs you have chosen as examples fit within the definitions of “discretionary fixed costs” and “committed fixed costs.”

Answer 1

Answer:

Committed fixed Costs Committed fixed costs (also known as capacity costs) are costs that the company is required to incur, to maintain the current production capacity. These costs result from long-range decisions made by top management about the size and nature of the organization and they must be incurred if a company continues to use its existing capacities to produce and sell its product or service.
Examples
Examples of committed costs include depreciation, rent, supervisor's salaries, property taxes and depreciation.
Discretionary Fixed Costs:
Discretionary fixed costs are costs incurred because of policy decisions by management. They are more likely to change during a time period than committed costs. These costs are usually set at a fixed amount each year at the discretion of the management. Discretionary fixed costs are also known as managed costs or programmed costs.
Examples:
Typical discretionary costs include advertising, research and development, employee training programmes and charitable contributions. Expenditures on discretionary fixed costs are usually regarded as investments in the future

Example - university Business school:
Discretionary fixed costs:
Database ( one year reneval ) , Advertising campigns & R&D ,
Commited Fixed costs :
Building Rent , leases , Furniture and staff .