Revision Notes On Cost Behaviour

  1. Costs can be classified in several different ways
  2. The total of the direct costs is known as PRIME COSTS
  3. The indirect costs of a business are also known as OVERHEADS
  4. Cost that vary with the level of economic activity are known as VARIABLE COSTS
  5. Cost that do NOT change with the level of economic activity are known as  FIXED COSTS
  6. Total costs may be split into fixed and variable costs, or direct and indirect costs
  7. Understanding the nature of costs and their behavior in relation to the level of economic activity is central to management decision-making.
  8. MIXED costs are cost that include a combination of fixed and variable costs.
  9. The relationship between cost and the level of business activity can be determined by using several statistical techniques.
  10. Each method generates  particular cost behavior relationship
  11. A scattergraph is used to illustrate the relationship between the costs and outputs
  12. The cost behavior relationship may be positive, negative or nil

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