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cyberk cyberk
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Fixed costs are those costs that do not change as the level of activity increases or decreases. However, fixed costs may be classified as discretionary or committed.

Required:

a.Explain the differences in these classifications and give an example of each.
b.Discuss why managers should consider the impact of these costs in the
decision-making process in times of falling profits.
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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LoveameriahLoveameriah
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More solutions for this book are available here
a.Discretionary fixed costs can be changed over the short run while committed fixed
costs cannot. For example, an advertising contract with the local newspaper may easily be reduced or canceled while a 10-year lease on a building may have severe consequences if the contract is broken.
b.Managers should be cautious about reducing their discretionary fixed costs during
times of falling profits since doing so may reduce sales even further. Managers, in their strategic planning (long-range planning) should consider the impact of committed fixed cost and what consequences will arise if revenues fall since these costs generally cannot be changed over the short run.

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cyberk Author
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2 months ago
Smart ... Thanks!
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this is exactly what I needed
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