Cost Behavior Paper

Cost Behavior Paper
Accounting /561
Your Name
April 25, 2011
Linda Moore


                The purpose of this paper is to help management on all levels, understand current budget decisions. All managers on all levels should have a clear knowledge of basic accounting. They must understand the terms the accountants use such as cost drivers, fixed costs and variable cost. To understand what cost drivers are the reader must first understand what the term cost means. Cost is an amount to be paid or a requirement for a payment to purchase a product or a service.   When a change in cost occurs over a period, this is called a cost driver. Cost drivers gives the manager an idea of what a company needs to purchase to make sure the production continues smoothly. A manager would know the amount of material needed is driven by the amount that’s produced. In other words, to determine the cost driver and material cost, we must know how much is produced.   We must also know how long the equipment is existing, how much it will cost to maintain the equipment, and how much will it cost to maintain employees on the job.  
To be successful in planning for the company, a manager must understand how cost will flourish under certain circumstances. A manager must understand the decision making process and how it behaves in certain situations. Managers can prepare their budgets, predict cash flow plan dividend payments, and establish selling prices when using cost behavior information. From the cost behavior standpoint, there are several common cost types. The two that will be focus on in this paper are fixed and variable costs.  
Fixed costs are the costs of the investment goods used by the firm ( investpedia). These costs are unmovable and do not vary with activity for an accounting period. They must be paid each month or year without exception. These costs are the expenses that do not change depending on production or sales...