To know fixed cost is very important because it is helpful for taking best decision of cost accounting. When we do business in divisions, branches and departments, we are interested to know to grow our overall profitability. We also take decisions whether we should leave lose making branch or department or not.
At that time to show all the types of fixed cost and analyse profitability more deeply is very necessary. First of all we explain its types then we explain its importance more deeply.
1. Separable Fixed Cost
Separable Fixed cost is the fixed cost which we separate it from one branch or one department to other. For example, we have to sales department. In one department, we sell furniture and in other department, we sell lighting accessories. In furniture department, there is $1000 fixed cost and in Lighting department, we have $ 1500 fixed cost. Both are separable fixed cost. If we stop to sell furniture through furniture department, we need not pay $ 1000. Ending of department will end the separable fixed cost.
2. Discretionary Fixed Cost
Discretionary fixed cost is the fixed cost which can be increased or decreased after some period. It does not change due to increase or decrease of quantity of sales or production but it is connected time period. For example, we have invested in advertising for 5 years for brand. When our brand will become popular, we can decrease the cost of advertising after 5 years or we can also take decision for more advertising in other countries, where we are interested to sell products. Following are main examples of discretionary fixed cost .
3. Committed Fixed Cost
Committed fixed cost is the fixed cost which does not adjust or separate from other departments or branches. Whether we have working on other departments or branches or not, we have to pay committed fixed cost.
At that time to show all the types of fixed cost and analyse profitability more deeply is very necessary. First of all we explain its types then we explain its importance more deeply.
1. Separable Fixed Cost
Separable Fixed cost is the fixed cost which we separate it from one branch or one department to other. For example, we have to sales department. In one department, we sell furniture and in other department, we sell lighting accessories. In furniture department, there is $1000 fixed cost and in Lighting department, we have $ 1500 fixed cost. Both are separable fixed cost. If we stop to sell furniture through furniture department, we need not pay $ 1000. Ending of department will end the separable fixed cost.
2. Discretionary Fixed Cost
Discretionary fixed cost is the fixed cost which can be increased or decreased after some period. It does not change due to increase or decrease of quantity of sales or production but it is connected time period. For example, we have invested in advertising for 5 years for brand. When our brand will become popular, we can decrease the cost of advertising after 5 years or we can also take decision for more advertising in other countries, where we are interested to sell products. Following are main examples of discretionary fixed cost .
- Expenses for advertising
- Expenses for employees training
- Expenses for investor relations
- Expenses for public relations
- Expenses for research and development
3. Committed Fixed Cost
Committed fixed cost is the fixed cost which does not adjust or separate from other departments or branches. Whether we have working on other departments or branches or not, we have to pay committed fixed cost.
Comments