
(a) What is cost behavior analysis?
(b) Why is cost behavior analysis important to management?
(a)

Cost Behavior Analysis: It refers to analysis of cost which tends to change with change in any business condition.
To explain: (a) Meaning of cost behavior analysis
Explanation of Solution
Cost tends to change with change in the business condition, therefore this change in cost with respect to the business conditions is analyzed and this is known as cost behavior analysis.
Different types of costs are incurred in the business some of them change as per the production, whereas some of the costs do not change with the change in level of production. This irregular behavior of production is referred as cost behavior.
Thus, cost behavior analysis is change in cost due to change in business conditions.
(b)

Cost Behavior Analysis: It refers to analysis of cost which tends to change with change in any business condition.
To explain: Importance of cost behavior analysis for management.
Explanation of Solution
Any kind of managerial decision or the final price of the product depends on the cost incurred in production. Therefore, cost analysis is very important factor.
The importance of cost behavior analysis is as given below:
- A proper idea of cost should be known because the cost factor decides which course of action the firm should follow.
- Different types of costs are incurred in the business some of them changes as per the production, whereas some of the cost do not change with the change in level of production. Therefore, the price of the product totally depends on cost.
Thus, cost behavior analysis is important for the management of the company.
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Chapter 5 Solutions
Managerial Accounting: Tools for Business Decision Making
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