A future cash flow that will be incurred anyway, regardless of the decision taken, agreed in the past contractually is called which cost?

A future cash flow that will be incurred anyway, regardless of the decision taken, agreed in the past contractually is called which cost?

• A. Controllable cost
• B. Uncontrollable cost
• C. Committed cost
• D. Environmental external failure costs

Answer: (C)

Committed costs are future outflows that will be incurred because of existing capacity and contractual obligations, and cannot be avoided in the short term by changing decisions. They arise from commitments made in the past and must be paid regardless of what actions are taken now. Think of lease payments, long-term salaried staff, or depreciation on assets funded earlier—these obligations continue even if you scale back operations. This is different from discretionary costs, which management can reduce in the short term if needed. So the described cash flow fits the idea of a committed cost.

Committed costs are future outflows that will be incurred because of existing capacity and contractual obligations, and cannot be avoided in the short term by changing decisions. They arise from commitments made in the past and must be paid regardless of what actions are taken now. Think of lease payments, long-term salaried staff, or depreciation on assets funded earlier—these obligations continue even if you scale back operations. This is different from discretionary costs, which management can reduce in the short term if needed. So the described cash flow fits the idea of a committed cost.