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Cost Behavior Analysis And Cost Volume Profit Analysis

Cost Behavior Analysis And Cost Volume Profit Analysis

Understanding cost behavior is a critical aspect of cost-volume-profit analysis.


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. For example, if the usage of a production line is approaching its maximum capacity, the relevant cost behavior would be to expect a large cost increase (to pay for an equipment expansion) if the incremental demand level increases by a small additional amount.

The general types of cost behavior fall into three categories. First is variable costs, which vary directly with changes in business activity. For example, there is a specific direct materials cost associated with each product sold. Second is fixed costs, which do not change in response to business activity levels. For example, the rent on a building will not change, even if the sales level of the tenant changes dramatically. Finally, there are mixed costs, which contain fixed and variable elements. For example, an Internet access fee includes a standard monthly access fee (which is fixed) and a broadband usage fee (which is variable).

Understanding cost behavior is a critical aspect of cost-volume-profit analysis.

Course Information

Financial Accounting

You will acquire a very good understanding of how costs change as sales or production activity changes.
You will lean break-even analysis
You will learn how to predict the number of sales needed to earn a target net income
You will learn about the margin of safety

People looking to double their profits through more effective management & costing
Anyone managing a company or team (now or soon) - whether big or small... or self employed
Someone who wants to do Cost Reduction or management in their future career
Businesses looking for inspiration on how to cut costs and stay competitive
Suitable for product or service related businesses

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Course duration is 24 hours.

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