Cost behavior is the manner in which expenses are impacted by changes in business activity. A business manager should be aware of cost behaviors when constructing the annual budget, to anticipate whether any costs will spike or decline.What are the different types of cost behavior?
There are four basic cost behavior patterns: fixed, variable, mixed (semivariable), and step which graphically would appear as below. The relevant range is the range of production or sales volume over which the assumptions about cost behavior are valid. Often, we describe them as time-related costs.What is an example of cost behavior?
The change in total costs in response to the change in some activity. For example, some of the costs of owning and operating a vehicle will increase in total with an increase in miles driven. These are referred to as variable costs and include gasoline and tires.How do you determine cost behavior?
Definition of Cost Behavior
The total amount of a variable cost increases in proportion to the increase in an activity. The total amount of a variable cost will also decrease in proportion to the decrease in an activity. Fixed costs.