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    Accounting Standards Library
    Wednesday
    Nov032010

    What is a discretionary cost?

    A discretionary cost is a cost or capital expenditure that can be curtailed or even eliminated in the short term without having an immediate impact on the short-term profitability of a business.

    Management may reduce discretionary costs when there are cash flow difficulties, or when it wants to present enhanced short-term earnings in the financial statements. However, a prolonged period of reduction in discretionary costs gradually reduces the quality of a company's product pipeline, reduces awareness by customers, increases machine downtime, and may also decrease product quality and increase employee turnover. Thus, discretionary costs are actually only discretionary in the short-term, not the long-term.

    Examples of discretionary costs are:

    • Advertising
    • Building maintenance
    • Contributions
    • Employee training
    • Equipment maintenance
    • Quality control
    • Research and development

    Similar Terms

    A discretionary cost is also known as a managed cost or a discretionary expenditure.

    Related Questions

    What is a committed cost?
    What is a differential cost?
    What is a relevant cost?
    What is an irrelevant cost?

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