Definition of Cost Behavior
Cost behavior is the change in a company's costs as the company's activities change. In cost accounting and managerial accounting, costs are often classified into three groups based on how their total will change when there is change in the volume of one or more activities:
- Variable costs. These are the costs that increase in total as the volume of an activity increases
- Fixed costs. These costs that do not change in total as the volume of an activity changes
- Mixed or semivariable costs. These costs are partially fixed and partially variable
Understanding how costs behave is important for management's efforts to plan and control its organization's costs and for cost-volume-profit analyses which includes the calculation of a company's break-even point.
Examples of Cost Behavior