Types of Fixed Costs

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Committed fixed costs - relate to the investment in facilities, equipment, and the basic organizational structure of the firm.  Examples include depreciation of buildings and equipment, taxes on real estate, insurance, etc.


Discretionary fixed costs - usually arise from annual decisions by management to spend in certain fixed cost areas.  Examples include advertising, research and development, public relations, etc.

The trend in many companies is toward more fixed costs relative to variable costs, primarily through investments in automation and technology.  This has led to an increase in the demand for knowledge workers needed to operate the machinery or technology.

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