Why is knowledge of cost behavior important for managerial decision making? Give an example to illustrate your answer.
State the importance of cost behavior for managerial decision making and provide an example.
Explanation of Solution
Cost behavior: Cost behavior is the relationship between cost and activity and it is relevant to the organizations’ functions of planning, controlling and decision making.
Cost behavior patterns enable managers to make cost predictions that result from changes in activity. Cost predictions are used in planning, control, and decision making. For example, in order to plan operations and prepare budget, managers must predict costs that is incurred at different stages of production and sales.
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Chapter 3 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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