Cost behavior is the study of changes in costs that are related to a company’s level of activity. Management needs to know what will happen if there are changes in the costs of production. This course has identified costs of production as:
It is also important to know what action causes costs to change.
Consider a large company, like Target, and all the little costs that can affect its profitability. The phrase "paper or plastic" becomes meaningful in more than an eco-friendly way when the costs of paper and plastic are compared.
This analysis is what it means to study costs and determine the relationship between costs and profits.
For the analysis in this lesson, classify all costs as variable, mixed, or fixed.