Discretionary CostsĬosts incurred in research and development programmes such as special policy decisions, new research programmes of the management are known as discretionary or programmed costs. These are the cost paid to the management and staff to ensure the continued operations of the company. Some examples of committed costs are depreciation on assets, taxes, rent, insurance etc. To maintain the company’s physical existence and providing facilities, some costs incurred which are known as committed costs over which the company’s administration has no discretion. Solutionįixed Cost Categories for Analysis Purposeįollowing are the categories of this cost for the purpose of analysis: Committed Costs Margin of safety – ₹ 96000, Total cost – ₹ 73,600, Units of Margin of safety – ₹9600 units, Break-even sales – 3200 units. For example, a company bears various expenses for the production of a particular product and the cost paid as the rent of the warehouse is fixed for a period of the lease. These costs are not fixed for all time they will change over time although not affect the quantity of production for the relevant period. If a company has to pay 50,000 ₹ each month to cover the cost of the lease but does not manufacture anything during the month, the lease payment is still due for payment.

One of the examples of this cost is a company’s lease on a building. ₹ 45,000 fixed cost from zero (0) to forty thousand (40,000) units, which denotes that if production level declines below 40,000 units, it may not be incurred fixed cost, like at the time of shut down of plant various fixed costs are not incurred like the cost of accounting functions, staff salary, etc.For example, Rise in cost of quantity control and supervision cost. It is considered that the rise in production after a certain level (1,00,000 units) also needs to rise in fixed expenses which are pre-fixed. The insurance coverage amount may change based on the business's needs, but the premium amount will remain fixed. Insuranceįor example, a business that pays $1,000 monthly for liability insurance will have to pay that amount regardless of how much they produce or sell. For instance, if a business has salaried employees who earn $4,000 per month, they will be paid that amount even if the business experiences a slow month in terms of production. The amount of money a business pays its employees each month is typically fixed and does not change based on production or sales. For example, a retail store that pays $5,000 monthly rent will have to pay that amount whether they sell $10,000 or $100,000 worth of products monthly. Rent is a fixed cost that businesses must pay regardless of how much they produce or sell. Fixed Costs ExamplesĮxamples of fixed costs include rent, salaries, insurance and loan payments. Want to know how a firm makes profits after incurring all these costs? Read our article on Revenue vs Profit. Price Elasticity Of Supply in the Short and Long Run.Price Determination in a Competitive Market.Market Equilibrium Consumer and Producer Surplus.Determinants of Price Elasticity of Supply.

Determinants of Price Elasticity of Demand.Cross Price Elasticity of Demand Formula.Effects of Taxes and Subsidies on Market Structures.Perfect Competition vs Monopolistic Competition.Monopolistic Competition in the Short Run.Monopolistic Competition in the Long Run.Behavioural Economics and Public Policy.

Fixed expenses definition economics