Importance Of Cost Behavior

1609 Words7 Pages
Executive Summary
This report is written for a manger to understand why it is important for a manger to understand the cost structure and behavior. The way cost structure and cost behavior will impact on the profitability of the business. The discussion is focus on the cost structure and cost behavior. The role of the cost structure and cost behavior that impact on the profitability of business. This paper will give a main idea about the cost structure and cost behavior and also the importance of the cost structure and cost behavior to turn the business profit.

1.0 Introduction
The purpose of this report is to evaluate why it is important for a manager to understand the cost structure and cost behavior. Managers will get information on
…show more content…
Having the correct price is also important in attracting new customers as if the business is lower on price than another business then the customer would choose to pay a smaller amount for the same item. However it is all good being the low-priced but it still doesn’t mean we will be successful as if the price structure is incorrect then we will forever be making a loss and will run the business into the ground as we will never make any money on any of the products or services. Also by giving appropriate and exact estimates for jobs is dynamic as no job is the same even if the name of it is. For example: “changing fuel pump” as all pickups are different and require more or less parts to be removed. So that we can get to it. This makes it important to price the job on hours done on rather than a fixed price for the…show more content…
For example, managers at Honda must decide Wave motor bike are most profitable. Managers at GE might consider whether a component part for its new line of dishwashers should be made or brought. At Bank of Maldives, managers might want to explore the effect a 10% increase in customers is expected to have on operating income. The management team at Gap, Inc., would want to learn why the variable overhead efficiency variance is so large. Managers at STO and MIFCO would want to know which cost drivers to choose in its activity-based costing systems. Knowledge of cost behavior is required to answer these questions. This report has focus on how managers decide cost behavior patterns. That is how managers understand how costs change in relation to changes in activity levels, in the quantity of products produced, and so on. Managers are able to cost behavior through cost functions. A cost function is a mathematical explanation of how a cost changes with changes in the level of an activity relating to the
Open Document