Describe the importance of cost behavior patterns in planning, control, and decision making.
Describe the importance of cost behavior patterns in planning, control, and decision making.
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 are vital in the process of making cost predictions. 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.
Cost control is achieved by comparing “actual costs against budgeted costs”, which depends on cost predictions. Cost predictions are vital for decision making, because the popularity of various alternatives frequently depends upon on the costs that will be incurred under those alternatives.
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