Committed cost
A committed cost is a fixed cost arising from long-term capacity decisions — such as depreciation on owned plant or a multi-year lease — that cannot be altered in the short run and is therefore generally irrelevant to short-term decisions.
FrameworkCost behaviour
See it move
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A manufacturer pays €200,000 a year on a factory lease with three years remaining — a committed cost that continues whether or not a new contract is accepted, so it is excluded from the decision. A discretionary cost, such as a marketing budget, can be raised or cut in the near term without structural consequence, which is why management can adjust it when evaluating the same contract.
Where it fits
SubjectCost AccountingAdvancedTopicCost Behaviour & EstimationAdvancedTopicRelevant Costs & Decision-MakingAdvanced