Unit 4: Cost Behavior Patterns
This chapter introduces a new way to evaluate costs and make management decisions. Rather than examining direct materials, direct labor, and manufacturing overhead, we rearrange this information as variable costs, fixed costs, and mixed costs (fixed and variable costs combined).
For example, in the previous unit we classified a factory worker who earns a salary and annual bonus based on company performance as direct labor. In this unit, we allocate salary to fixed costs, and the bonus to variable costs. We also explore how managers make short-term decisions (what needs to occur during the next hour, day, week, or year). Fixed cost restraints, such as plant size, equipment size, and age, often define short-term decisions.
Understanding how these three types of costs variables behave allows business managers to predict revenue, operating income, and changes in sales volume.
Completing this unit should take you approximately 5 hours.
4.1: Cost Behavior Patterns
4.2: Cost Estimation Methods
4.3: Contribution Margin Income Statement