Define discretionary and committed fixed cost with example.

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Expert Solution

Discretionery Fixed cost: It is a cost which is not incurred due to any commitment,it is incurred by the company due to its own discretion.It is not a compulsory cost . It is decided by management of the Company as per its own discretion in the policies of the company.For Example if the Company set in its policies that it incurred $100000 each year for employees training programme,$50000 incurred for research and development,$30000 for advertising expenses etc.This amount can be changed by management on the basis of changing requirements.

Committed cost is a cost which is incurred due to written or oral commitment .Committed Fixed cost are required to pay by the Company each year.For Example as per Rent agreement ,Company are required to pay $50000 per month for Rent of Machinery,Building etc. Salaries of the Emplyees are also fixed as per appointment letter .Depreciation Expense (rates as per law ). These amounts are fixed Company’s management cannot change these amounts.

ekkarill92 answered 1 year ago

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