Describes how a typical cost will react or respond 10 changes in The level of business activity?
Describes how a typical cost will react or respond 10 changes in The level of business activity?
How the specific cost reacts due to changes on activity level is called cost behavior. sometime cost may same or may change proportionally according to change inactivity.it is necessary to know how the cost reacts to change in the activity level, it facilitates the forecasting, predicting how the profit varies and help in making a budget for the future.
Let discuss how the cost reacts at different activity level in business. the typical cost comprises three basic cost behavior pattern known as variable, fixed and mixed cost.
Variable cost varies with the change in volume of activity. variable cost increase or decrease depends upon the production level if production increase than variable cost increase proportionally and vice versa.
Take some example of variable cost:
- Commission on sale increase with an increase in sale volume and vice versa.
- Part time wages also depends on volume level and they charge based on volume or per unit or may be per hour.
- Credit card fee charges change positively with a change in fee.
- maintenance charges
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