Quick Answer: What Are Discretionary Fixed Costs Quizlet?

What is the primary difference between variable and absorption costing?

The difference is that the absorption cost method includes fixed overhead as part of the cost of goods sold, while the variable cost method includes it as an administrative cost, as shown in Figure 6.12..

Which of the following would be considered a variable expense?

Variable costs are those that respond directly and proportionately to changes in activity level or volume, such as raw materials, hourly production wages, sales commissions, inventory, packaging supplies, and shipping costs.

How do you calculate fixed costs?

To determine your business’ total fixed costs:Review your budget or financial statements. Identify all the expense categories that don’t change from month to month, such as rent, salaries, insurance premiums, depreciation charges, etc.Add up each of these fixed costs. The result is your company’s total fixed costs.

What are common fixed costs?

Common fixed costs are costs that are not traceable to a specific segment within the business. These are costs that fund people, resources or activities that support more than one segment within the business.

What are discretionary fixed costs?

A discretionary fixed cost is an expenditure for a period-specific cost or a fixed asset, which can be eliminated or reduced without having an immediate impact on the reported profitability of a business. … The following can be considered discretionary fixed costs: Advertising campaigns. Employee training.

Which of the following is an example of a discretionary fixed expense?

-also referred to as managed fixed costs, usually arise from annual decisions by management to spend on certain fixed cost times. Examples of discretionary fixed costs include advertising, research, public relations, management development programs, and internships for students.

What are some examples of fixed costs?

Examples of fixed costs include rental lease payments, salaries, insurance, property taxes, interest expenses, depreciation, and potentially some utilities.

Is research and development a fixed cost?

Investments in facilities, equipment, and the basic organization that cannot be significantly reduced in a short period of time are referred to as committed fixed costs. … Examples of discretionary costs are advertising, insurance premia, machine maintenance, and research & development expenditures.

Is advertising a discretionary expense?

Discretionary costs (avoidable costs) are costs or capital expenditures that can be curtailed or even eliminated in the short term without having an immediate impact on the short-term profitability of a business. Examples of discretionary costs include advertising, maintenance, training, R&D, etc.

What is the difference between committed fixed costs and discretionary fixed costs?

The key difference between discretionary and committed fixed costs is that discretionary fixed costs are period specific costs that can be eliminated or reduced without having a direct impact on profitability whereas committed fixed costs are costs that a business has already made or obliged to make in the future.

Is salary a committed fixed cost?

Examples of committed fixed costs include investments in assets such as buildings and equipment, real estate taxes, insurance expense and some top-level manager salaries. … These fixed costs can be cut out with no real damage to the long-term goals of the company.

What are two types of expenses?

Different Types of Expenses There are two main categories of business expenses in accounting: Operating expenses: Expenses related to the company’s main activities, such as the cost of goods sold, administrative fees, and rent. Non-operating expenses: Expenses not directly related to the business’ core operations.

What is fixed cost and variable cost with example?

Examples. Fixed Costs. Depreciation, interest paid on capital, rent, salary, property taxes, insurance premium, etc. Variable Costs. Commission on sales, credit card fees, wages of part-time staff, etc.

Is rent a fixed cost?

Unlike variable costs, a company’s fixed costs do not vary with the volume of production. Fixed costs remain the same regardless of whether goods or services are produced or not. … The most common examples of fixed costs include lease and rent payments, utilities, insurance, certain salaries, and interest payments.

Why is variable cost important?

Why variable costs are important Variable costs are not only a major part of running a business, they also can be key to turning breaking-even into profits. Or existing profits into larger profits. Keeping track of variable costs can provide crucial insight into where cash outflow is going and to what extent.

What is step cost?

Step costs are expenses that are constant for a given level of activity, but increase or decrease once a threshold is crossed. Step costs change disproportionately when production levels of a manufacturer, or activity levels of any enterprise, increase or decrease.

Why fixed cost is important?

The most significant benefit of fixed costs is they are easy to budget. You know over each period what these costs will be, and you don’t need to make any budget accommodations if production increases suddenly.

Is Depreciation a discretionary fixed cost?

While fixed costs such as rent, lease and loan payments, management salaries and depreciation are non-discretionary, other fixed costs, such as advertising, promotional expenses and subscriptions are among those you can choose to include — or not include — in ongoing business spending.

Is taxes a fixed cost?

expenses that remain constant in total regardless of changes in activity within a relevant range. Examples are rent, insurance, and taxes. Fixed costs include salaries of executives, interest expense, rent, depreciation, and insurance expenses. …

What are examples of variable costs?

Examples of variable costs are sales commissions, direct labor costs, cost of raw materials used in production, and utility costs. The total variable cost is simply the quantity of output multiplied by the variable cost per unit of output.

What are avoidable fixed costs?

Avoidable fixed costs. are costs that can be avoided by choosing one alternative over another. For example, if an entity decides to discontinue a product line, all costs related to the product line will not be incurred (i.e., avoided).