Discretionary Costs

Discretionary Costs⇒ sometimes called flexible costs, are costs that may or may not be incurred by either engaging in an activity or not engaging in it, at the discretion of the manager bearing the cost. In the short term, not engaging in a discretionary activity will not cause an adverse effect on the business. However, in the long run the activities are necessary and the money does need to be spent.

Discretionary cost decisions are made periodically and are not closely related to input or output decisions. Furthermore, the value added and the benefits obtained from spending the money cannot be precisely defined. Advertising, research & development (R&D), and employee training are usually given as examples of discretionary costs. Discretionary costs, or flexible costs, may be fixed costs, variable costs, or mixed costs