A committed cost is an investment that a business entity has already made and cannot recover by any means, as well as obligations already made that the business cannot get out of. One should be aware of which costs are committed costs when reviewing company expenditures for possible cutbacks or asset sales.

What is a committed cost example?

Example of a Committed Cost

If a company buys a machine for $40,000 and also issues a purchase order to pay for a maintenance contract for $2,000 in each of the next three years, all $46,000 is a committed cost, because the company has already bought the machine and has a legal obligation to pay for the maintenance.

What are committed cost in a project?

The “Committed costs” are the project expenses that are used over a period longer than the cost reporting period. An example of this is the materials and services(Subcontractors and Consultants) getting used in a project.