The proposed model reduces to the TOC when all labor and overhead are committed costs in the short run.
The flexible and committed costs were divided by the set-up activity's practical capacity to determine a flexible and committed cost driver rate of $50 and $450 per set-up hour, respectively.
Engineering's expected total, flexible, and committed costs were divided by the activity's practical capacity of 1,000 drawings to derive total, flexible, and committed cost driver rates of $1,200, $180, and $1,020 per drawing, respectively.
First, the operational ABC model reduces to the TOC when all labor and overhead resources are committed costs.
In effect, over an extended time horizon, a company s committed cost is subject to management control.
Under ABC, an activity's resources are disaggregated into either flexible or committed cost (Cooper and Kaplan, 1992).
In the short run, an activity's committed cost is a sunk cost that is irrelevant for decision making.
The flexible and committed assembly overhead was divided by the assembly activity's practical capacity to derive a flexible and committed cost driver rate of $8 and $16 per machine hour, respectively.
The difference between the two rates is the committed cost driver rate for assembly.
The rating upgrade reflects the fundamental value of an essential electrical service with very little business risk compared to greater competition and uncertainty associated with electricity generation, and the member systems' 1996 reaffirmation to pay all of GTC's committed costs
via joint and several take-or-pay commitments, extending through the year 2025.