Cost Behavior
How costs change in relation to activity levels, classifying expenses as fixed, variable, or mixed to support forecasting, budgeting, and decision-making.
Cost Behavior
The way costs respond to changes in activity levels or business operations, typically classified as fixed, variable, mixed, or step costs to support planning, control, and decision-making.
For example, in a delivery service, vehicle depreciation represents a fixed cost regardless of miles driven, fuel is a variable cost that changes directly with mileage, vehicle insurance might be a mixed cost with both fixed and variable components, and driver supervision could be a step cost that increases only when certain volume thresholds are reached.
Understanding cost behavior is crucial for cost-volume-profit analysis, flexible budgeting, and breakeven calculations. Cost estimation techniques like high-low method, scatter plots, and regression analysis help managers separate mixed costs into their fixed and variable components, enabling more accurate forecasting and better-informed operational decisions.