5-6.) Managers often assume a strictly linear relationship between cost and volu

Question

5-6.) Managers often assume a strictly linear relationship between cost and volume. How can this practice be defended in light of the fact that many costs are curvilinear?

5-7.) Distinguish between discretionary fixed costs and committed fixed costs.

5-8.) Classify the following fixed costs as normally being either committed or discretionary: (a) Depreciation on buildings, (b) Advertising, (c) Research, (d) long-term equipment leases, (e) pension payments to the company's retirees,(f) management development and training.

Explanation / Answer

The total costs contains both fixed and variable costs. Variable cost will vary with volume, where as fixed cost is fixed, and it wont vary with the change in the volume Discretionary fixed cost It arises from your appropriation decisions for repairs and maintenance costs, advertising costs, executive training and so on. It is a short run phnomenan that usually can be adjusted down ward, there by permitting the organization to operate at any desired level of productive capacity provided for by the committed fixed cost. Committed fixed cost It arises of necessity from having a basic organizational structure. It is a long run phenomenan that usually can not be adjusted down ward without adversely affecting the ability of the organization to operate at even a minimum level of activity. a.Decretionary b.Discretionary c.Committed d.committed e.committed f.Decretionary

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