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Cost Behaviors and Drivers

How can analyzing whether cost behaviors are fixed, variable, or mixed assist in the interpretation of current performance and costs management techniques?

Cost Behavior in Real Companies

Choose a company you are familiar with that makes a product or provides a service. In this activity, you will make reasonable estimates of the costs and activities associated with this business; companies do not usually publish internal information costs or processes information.

Basic Discussion Questions

1. Describe the company you selected and the products or services it offers.

2. List ten costs that this company would incur. Include costs from a variety of departments within the business, including human resources, sales, accounting, production (if you’re a manufacturer), service (if you’re a service business), and others. Make sure you have at least one cost from each of the following categories: fixed, variable, and mixed.

3. Classify each of the costs you listed as fixed, variable, or mixed. Justify why you classified each cost as you did.

4. Describe a potential cost driver for each of the variable and mixed costs you listed. Explain why each cost driver would be appropriate for its associated cost.

5. Discuss how easy or difficult it was for you to decide whether each cost was fixed, variable, or mixed. Describe the techniques a company might use to determine whether a cost is fixed, variable, or mixed.

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