Discretionary cost
Discretionary cost is a fixed cost set by management each period — such as advertising, training or research spending — with no contractual link to output volume.
FrameworkCost behaviour
What it is
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Advertising, staff training and research spending are discretionary — management resets the budget each period, with no contract tying the amount to output. Lease rent, depreciation and insurance are committed instead, fixed by a signed contract or installed capacity. Discretionary costs can be cut quickly when budgets tighten, though the savings, such as weaker sales after an advertising cut, often arrive later.
Check yourself
PracticeCORE
Which of the following best distinguishes a discretionary fixed cost from a committed fixed cost?
Select an answer to check your understanding.