Multiple Choice
In the accounting records of a defendant, lawsuits are typically:
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9. Current Liabilities
Types of Liabilities
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Fixed costs that usually arise from annual spending decisions by management are called:
A
Committed fixed costs
B
Contingent liabilities
C
Discretionary fixed costs
D
Current liabilities
Verified step by step guidance1
Understand the concept of fixed costs: Fixed costs are expenses that do not change with the level of goods or services produced within a certain range of activity. They are incurred regardless of production levels.
Differentiate between types of fixed costs: Committed fixed costs are long-term and cannot be easily changed (e.g., lease payments). Discretionary fixed costs are short-term and arise from annual decisions by management (e.g., advertising or research expenses).
Clarify the term 'discretionary fixed costs': These are costs that management can adjust or eliminate in the short term without significant impact on the company's operations. They are often tied to annual budgeting decisions.
Review the other options: Contingent liabilities are potential obligations that depend on future events, and current liabilities are short-term obligations due within a year. Neither of these terms relates to fixed costs.
Conclude that the correct answer is 'Discretionary fixed costs,' as these are fixed costs arising from annual spending decisions by management.
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