ACCT1022 Chapter 6: Activity Analysis, Cost Behavior, and Cost Estimation
Document Summary
Chapter 6: activity analysis, cost behavior, and cost estimation. Managers in almost any organization want to know how costs will be affected by changes in the organization"s activity. The relationship between cost and activity is called cost behavior and it is relevant to the management functions of planning, control, and decision making. A cost prediction is a forecast of cost at a particular level of activity. The determination of cost behavior, cost estimation, can be accomplished in a number of ways. Cost functions smooth out fluctuations in demand for each type of product. A variable cost changes in total in direct proportion to a change in activity level. Total variable costs increase in proportion to activity level. Some costs are nearly variable, but they increase in small steps instead of continuously. They include inputs that are purchased and used in relatively small increments.