COST BEHAVIOUR

Cost Behaviour

Cost Behaviour

Cost Behavior

Cost behavior is the way of in which the cost is acting and showing its behavior. Knowing the behavior of costs is useful in the management of a company for a variety of purposes. For example, knowing as comport costs, allows managers or administrators predict earnings as sales volume and production changes. Understanding the behavior of the cost is important in order to estimate. In turn, the cost that has been estimated of different decision taken by the management that has affected the administration and say, whether you should utilize the exceeding capacity of the machinery in order to sell and produce a product at a reduced cost. (Genest, 2005, 12-32)

Cost Accounting as a Tool in Decision-Making

In any organization making decisions daily, some are routine, such as hiring a new employee, others are not, how to enter or delete a product line.

It is obvious that the quality of the decisions of any company, large or small, is a direct function of the type of information available, therefore, if an organization wants to develop normally, it should have a good information system: a better quality of information, ensure the right decision.

The classification of costs depends on the type of measurement you want to make, generally cost reports indicate the cost of a product, service, a process, a special project, etc.

Fixed Costs Behavior

When the activity is measured in terms of units produced, the examples will include plant equipment, certain machinery, the depreciation of straight line of factory team and supervisor's salary, etc. (Peter, 2009, 96-124)

These are the costs that continue as the same in the total amount even and that the activity level changes. As an example, assume that Hana Inc. produces and distributes cheesecakes at its plant in Los Angeles, USA. The general supervisor of production at the plant in Los Angeles is Vicente Fernandez, who is paid a salary of $ 75.000 per annum. The relevant range of activity for one year is 50.000 to 300.000 cheesecakes. Vicente's salary is a fixed cost that does not vary with the number of units produced. Regardless of the number of cakes produced from the range of 50.000 to 300.000, Vicente received a salary of $ 75.000.

Even and that the fixed cost remains the same when the number of cakes produced change, the fixed cost per cake change. The more cakes are produced, the total fixed costs are distributed among more cakes, and then the cost per cake decreases.

Variable Costs Behaviour

When the level of activity is being measured in direct cost of materials, units produced and direct labor that are generally, classified under variable cost. The variable cost that varies in proportion to the total changes that have occurred in the levels of the activities performed. For example, suppose that the company Sound, Inc. produces audio systems in which under the "Loud", the parts for the sound system are purchased from the vendors outside the company, for $ 10 USD each and are arranged on the ...