Question

1. Briefly describe an organization with which you are familiar. Describe a situation when a manager in that organization could use cost behavior information and how the manager could use the information.
2. Compare discretionary fixed costs to committed fixed costs. Think of an organization with which you are familiar. Give two examples of discretionary fixed costs and two examples of committed fixed costs which that organization may have. Explain why the costs you have chosen as examples fit within the definitions of “discretionary fixed costs” and “committed fixed costs.”

Answer 1

*Reliance Industries limited is an Indian company which deals in telecommunications, textiles, energy, natural resources etc.
*Manager in this organisation can use the cost behaviour information for:
a) evaluating the performance of the department, departmental manager and performance of the whole organization.
b) It can be used it assess the per unit cost of goods and services.
c) It can be used for identifying variances and removing them.
d) cost behavior information is useful for management for taking decisions.
COMPARISON OF DISCRETIONARY AND COMMITED FIXED COST:
Discretionary fixed costs are those which can be eliminated or reduced.. and are period specific.
Example:*1.Advertising of products:because they can be eliminated and they are not an obligation for the organization.
2.training and development of employess:they are called discretionary because it depends on the organisation whether or not to incur these costs and they are not an obligation.
Commited fixed costs are an obligation for the company which have to be mandatarily met.
Example:1.government dues or statutory dues: they have to be necessarily met that's why they are called commited fixed costs.
2.Payment to key managerial personnel:they are called commited fixed costs because the organization has an obligation for it.