Question

Why is it important to distinguish flexible and committed resources?

Answer 1

As we know that flexible resources are those resources which changes with the activity level whereas committed resources are those resources which do not change with the activity level.

Making distinction between flexible and committed resources is important due to following reasons;

1. Distinguish between flexible and committed resources helps in knowing the rate of flexible resources per activity level.

2. It helps in knowing the total costs of committed resources for a range of activity level.

3. It helps in knowing the cost efficiency of the firm because per unit flexible resources used will help in knowing the cost efficiency.

4. Distinction between flexible and committed resources is helpful in maintaining better accounting records.

5. It helps in making various managerial decisions which are mostly depends on level of flexible and committed resources.