Is An Example Of A Discretionary Fixed Cost Expense?

What are optional expenses?

“Optional” expenses are those you CAN live without.

These are also expenses that can be postponed when expenses exceed income or when your budgeting goal allows for it.

Examples are books, cable, the internet, restaurant meals and movies..

What are discretionary items?

Discretionary income is the amount of an individual’s income that is left for spending, investing, or saving after paying taxes and paying for personal necessities, such as food, shelter, and clothing. Discretionary income includes money spent on luxury items, vacations, and nonessential goods and services.

What is other expenses in accounting?

other expenses in Accounting (ʌðər ɪkspɛnsɪz) (Accounting: Financial statements, Income statement) Other expenses are expenses that do not relate to a company’s main business. As well as operating costs, the company needs to consider other expenses including interest expense and losses from disposing of fixed assets.

What is the formula for variable cost?

To determine the total variable cost the company will spend to produce 100 units of product, the following formula is used: Total output quantity x variable cost of each output unit = total variable cost. For this example, this formula is as follows: 100 x 37 = 3,700.

How do you calculate avoidable costs?

An avoidable cost is a cost that is not incurred if the activity is not performed. Put another way, a company can avoid the cost if they no longer produce the good or service. For example, the cost of materials that go into a finished good is an avoidable cost.

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.

When using the High Low method if the high or low levels of cost do not match?

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity: choose the periods with the highest and lowest level of activity and their associated costs.

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.

How do you find fixed cost and variable cost?

Calculate total variable cost by multiplying the cost to make one unit of your product by the number of products you’ve developed. For example, if it costs $60 to make one unit of your product, and you’ve made 20 units, your total variable cost is $60 x 20, or $1,200.

What are the 4 types of expenses?

You might think expenses are expenses. If the money’s going out, it’s an expense. But here at Fiscal Fitness, we like to think of your expenses in four distinct ways: fixed, recurring, non-recurring, and whammies (the worst kind of expense, by far).

What are the categories of expenses?

There are three major types of financial expenses: Fixed, Variable, and Periodic. Fixed expenses are expenses that don’t change for long periods of time, like office rent or vehicle lease payments for you or your staff. Variable expenses change from month to month, such as utilities or meals and entertainment.

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.

What is committed and discretionary fixed costs?

Discretionary vs Committed Fixed Costs Discretionary fixed costs are referred to as period specific costs that can be eliminated or reduced without having a direct impact on profitability. Committed fixed costs are costs that a business has already made or obliged to make in the future; thus, cannot be recovered.

Is rent a fixed or variable cost?

Fixed costs often include rent, buildings, machinery, etc. Variable costs are costs that vary with output. Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc.

Why is packaging a variable cost?

For example, the packaging costs associated with a product would be a variable cost since the packaging costs would increase as sales increased. The raw materials used to make the product would also be variable costs since the cost of materials would rise and fall depending on sales volume of the product.

What is a discretionary fixed cost?

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.

How do you separate fixed and variable costs?

In cost accounting, the high-low method is a way of attempting to separate out fixed and variable costs given a limited amount of data. The high-low method involves taking the highest level of activity and the lowest level of activity and comparing the total costs at each level.

What are the examples of committed fixed cost?

Committed fixed costs: These are multiyear organizational investments that cannot be easily changed. 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.

What kind of effect on fixed costs per unit do changes in activity have?

Fixed Costs Regardless of the level of activity, the business pays the same. However, the fixed cost per unit changes as the level of activity changes. As more units are produced, the fixed cost per unit decreases.

At what levels of output the fixed costs remain fixed?

Fixed costs do not vary with the production level. Total fixed costs remain the same, within the relevant range. However, the fixed cost per unit decreases as production increases, because the same fixed costs are spread over more units.

What are discretionary fixed costs quizlet?

Discretionary fixed costs. Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research. Engineering approach.

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.

What is an example of a discretionary expense?

Discretionary expenses are often defined as nonessential spending or, in other words, wants rather than needs. This means a business or household is still able to run even if all discretionary consumer spending stops. Meals at restaurants and entertainment costs are examples of discretionary expenses.

Is salary a discretionary fixed cost?

Common Fixed-Cost Examples Rent or lease payments and loan payments represent a major fixed cost for many businesses because the landlord or bank expects the same amount each month. Salaries and employee wages are also a fixed cost.

What are non discretionary expenses?

Nondiscretionary expenses are things you must pay for or buy, including the following: Food. Rent or mortgage. Car payments. Utilities.

Why are raw materials a variable cost?

Thus, the materials used as the components in a product are considered variable costs, because they vary directly with the number of units of product manufactured. … The most purely variable cost of all, these are the raw materials that go into a product. Piece rate labor.

What are fixed monthly expenses?

The definition of fixed expenses is “any expense that does not change from period to period,” such as mortgage or rent payments, utility bills, and loan payments. … Here is a list of categories to include in your fixed expenses: Mortgage(s) Rent. Property taxes (if paying monthly)