Question

The costs incurred for the acquisition of short-run activity capacity, usually as the result of yearly planning are called:

a. discretionary fixed expenses
b. committed fixed expenses
c. mixed costs
d. step-variable costs

Answer 1

Committed fixed expenses are costs incurred for the acquisition of short-run activity capacity and do not vary with the level of production. They are often the result of yearly planning and long-term contractual commitments, like factory rent or machinery costs.

Step-by-step explanation:

The costs incurred for the acquisition of short-run activity capacity, usually as a result of yearly planning are called committed fixed expenses. These are expenditures that a company has made or committed to and are unavoidable in the short run, such as rent on a factory, machinery costs, or long-term contracts. These costs do not change with the level of production, even if production levels are increased or decreased.

In contrast, discretionary fixed expenses can be altered or avoided in the short term, such as advertising or research and development. Mixed costs contain both fixed and variable components and step-variable costs can change but in specific increments, not continuously with production levels.