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Cost Behavior Analysis
It analyses the relationship between costs and its impact on business processes. It explains the behavior of change in organization’s activities when the available costs changes.Understanding of its conceptis vital for any organization since its helps them to plan, control and organize various management activities. It also helps in the preparation of budgets and variance reports since with the use of proper cost analysis such reports are more effective. It also aids in calculating the breakeven point of a firm which in turn helps in calculating cost-volume-profit analysis.
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Basically two types of cost exists i.e.variable and fixed cost. When costs vary with respect to changes brought in an organizations level of activity then they are termed as variable costs. On the other hand, fixed ones remains constant and do not necessarily change over a period of time.
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Example of variable cost: Total roaming call costs depends upon the number of minutes you talk and changes if you talk more.
Example of fixed costs: Monthly telephone bill does not change with the frequency of calls made. They are generally fixed and almost the same amount you pay each month.
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