Committed and Discretionary Fixed Costs

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on November 16, 2021

Fixed costs can be classified as either committed costs or discretionary costs. This depends on their immediate impact on the organization.

Committed Fixed Costs

Committed fixed costs, otherwise known as capacity costs, are the costs required to maintain current production capacity. 

These costs arise from long-range decisions made by top managers about the size and nature of their organization. They cannot be avoided when a company uses its existing capabilities to produce and sell its products or services.

Examples

Examples of committed costs include:

  • Depreciation
  • Rent 
  • Supervisor salaries 
  • Property taxes

Discretionary Fixed Costs

Discretionary fixed costs, otherwise known as managed costs or programmed costs, result from policy decisions made by managers.

Unlike committed costs, discretionary fixed costs tend to change over time. Managers usually set these costs at a fixed amount each year.

Examples

Typical discretionary costs include:

  • Advertising
  • Research and development 
  • Employee training programs 
  • Charitable contributions

Expenditures on discretionary fixed costs tend to act as investments in the future.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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