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What is a Variable Committed Expense?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 April 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Variable committed expenses are necessary costs above and beyond the standard and usual, but has a high probability of occurring from time to time. This temporary and periodic cost increase usually will spike for a short term, then return to the usual limit. Many household and corporate budgets make allowances for at least some incidents of variable committed expense, so that the budget is not undermined when a variable periodic cost takes place.

One of the easiest ways to gain an understanding of a variable committed expense is to think in terms of household expenses that are absolutely necessary, but may vary from one billing period to the next. Household utilities are an excellent example. Many households experience an increase in the water bill during the summer months, owing to the consumption of more water for pools and other types of recreational toys for the children. Because water is considered a necessity, there is no way to avoid the increase above and beyond the usual cost. Instead, homeowners will minimize the impact of the variable committed expense of a higher water bill by budgeting extra funds for water during the summer months, or anticipate that other monthly expenses will reduce sufficiently to cover the increase in water consumption and cost.

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Corporations follow a similar strategy in order to cover a variable committed expense. Businesses know that the basic equipment required to produce goods will experience some downtime due to regular maintenance. That is an expense that can be anticipated and the cost projected. What is more difficult to project is the number of incidents when the equipment will break down and require repair. In addition, there may not be solid information to cover the cost of flying in experts to effect the repairs, or the cost of replacing an essential component before production is restored to normal limits.

A variable committed expense is not a factor that should be feared. Steps should be taken to create reserves of resources that can be called upon to minimize the anticipated upswings in the committed expense, so that when and if these temporary increases occur, the business or household can continue to function. With proper planning, expenses of this type can be understood as part of the risk of doing business and handled with relative ease.

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