Thursday, August 7, 2008

Difference between Discretionary Fixed Cost and Committed fixed cost

What are the main differences between a discretionary fixed cost and a committed fixed cost?

Definition of discretionary fixed cost and committed fixed cost
  • A discretionary fixed cost has a short future planning horizon—under a year. These types of costs arise from annual decisions of management to spend in specific fixed cost areas, such as marketing and research.
  • A committed fixed cost has a long future planning horizon— more than on year. These types of costs relate to a company’s investment in assets such as facilities and equipment. Once such costs have been incurred, the company is required to make future payments

18 comments:

Unknown said...

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Unknown said...

When we calculate cost per unit do we consider commited fixed cost ?

Unknown said...

only in absorption costing. Not in the marginal costing

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