This is a critical set of decisions because it represents committed costs
: the choice to maintain now or to wait represents a balance between committed cost
and the risk of functional failure.
It is customary to define fixed expenses as either discretionary or committed costs
. It is common to define committed costs
in terms of previous contractual obligations and the capacity to provide service.
The main difference is that the rated capacity for people-based, committed costs
for one shift is 2,080 hours while the rated capacity for time-based committed costs
over one shift is 2,920 hours.
Marginal costing ignores cash flows that won't be affected by a proposal, since they are deemed irrelevant, but this can take a naive view of prepaid sunk costs or future committed costs
when applied to short-term decisions, since firms must cover all their costs in the medium to long term to make a profit.
That way, committed costs
are reported straight out of the general ledger with no chance for error and are sent back from QuickBooks into the Excel-based job-cost templates for further analysis QuickBooks cannot provide.
"Over the past week, in-depth examinations of the budget over several years have shown some rolling committed costs
of pounds 2.3m, which was unknown to the Chief Constable and the management team of the organisation.
Goldratt (1990a) argues extensively that labor and over-head costs are committed costs
and are irrelevant for resource allocation decisions.
Completion of the implementation process, Phase III, consists of the recording of accounts payable vouchers at the property site and the ability to record and track committed costs
at the budget line-item level.