Quiz 3: Cost Behavior

Business

Cost behavior is the term used to express the responsiveness of cost with respect to other factor(s). A manager should be able to understand and assess the changes in costs that result from the change of activity. In this regard, the knowledge of cost behavior is very much needed. Suppose, if there is an excess capacity it minimally cover variable costs that may be totally appropriate. Knowing what costs are variable and what costs are fixed can help a manager make better bid.

Driver: A change in the cost of an activity is caused by a factor know as driver as and more than cost driver can be attached to an activity. For Example: In the situation of manufacturing or production, the different cost drivers would be associated with it like floor space occupied, power consumed, quantity of waste or rejected, machine and machine operator. Therefore, a factor that causes or leads to change in a cost or activity is driver.

Define the term "Driver": A change in the cost of an activity is caused by a factor know as driver as and more than cost driver can be attached to an activity. For Example: In the situation of manufacturing or production, the different cost drivers would be associated with it like floor space occupied, power consumed, quantity of waste or rejected, machine and machine operator.