What are Committed Costs in a business context?

Committed costs refer to expenses that a business is obligated to pay in the future, based on current agreements or contracts. These costs are already incurred due to binding commitments, such as leases, long-term contracts, or any other contractual obligations that the organization has entered into. Even if the payment has not yet been made, the company has a legal and financial responsibility to fulfill these obligations, making them a critical part of financial planning and forecasting.

Understanding committed costs is important for businesses as these figures impact budgeting and financial forecasts, ensuring that companies are aware of future cash outflows and can manage their resources accordingly.