management accounting paper
COST BEHAVIOUR AND CONTROL: THE TRADITIONAL AND STICKY COST PHENOMENON
Abstract
Cost behavior and control is of utmost importance to managers in order to decisions. In this study, we took a look at the traditional cost behavior models such as variable cost (which changes in line with activity), fixed cost (which is not proportionate with the level of activity), and semi- variable cost which is also known as mixed cost (which have both features of the variable and fixed cost). Furthermore, cost estimation techniques were also looked at and the advantages and disadvantages of each method outlined. We went a step forward and took a look at the new wave in cost behavior which is the issue of sticky cost which has been addressed empirically and was found to negate the traditional assumption of cost behaviour.
Introduction
The analysis and prediction of cost behavior is of utmost importance to managers as it aids in decision making. With the increase in global competition because of the decline of trade barriers and the rapid growth of economic interdependence, companies have been forced to produce high-quality products and services, and provide outstanding customer services at the lowest cost (Trairatvorakul, 2011). To operate successfully, managers need information from management accounting which provides timely and relevant information for planning, controlling, decision making, and evaluating performance (Horngen, Datar, & Rajan, 2012).
The more the international competition increases, the more managers need cost management information. Managers are interested in estimating past cost-behavior patterns, since this information can help make more accurate cost predictions concerning future cost for planning and decisions. Cost behavior is the way that costs respond to change in activity and decision. An understanding of cost behavior is therefore critical for managers and accountants in providing and using information to make effective decisions (Maher,
Abstract
Cost behavior and control is of utmost importance to managers in order to decisions. In this study, we took a look at the traditional cost behavior models such as variable cost (which changes in line with activity), fixed cost (which is not proportionate with the level of activity), and semi- variable cost which is also known as mixed cost (which have both features of the variable and fixed cost). Furthermore, cost estimation techniques were also looked at and the advantages and disadvantages of each method outlined. We went a step forward and took a look at the new wave in cost behavior which is the issue of sticky cost which has been addressed empirically and was found to negate the traditional assumption of cost behaviour.
Introduction
The analysis and prediction of cost behavior is of utmost importance to managers as it aids in decision making. With the increase in global competition because of the decline of trade barriers and the rapid growth of economic interdependence, companies have been forced to produce high-quality products and services, and provide outstanding customer services at the lowest cost (Trairatvorakul, 2011). To operate successfully, managers need information from management accounting which provides timely and relevant information for planning, controlling, decision making, and evaluating performance (Horngen, Datar, & Rajan, 2012).
The more the international competition increases, the more managers need cost management information. Managers are interested in estimating past cost-behavior patterns, since this information can help make more accurate cost predictions concerning future cost for planning and decisions. Cost behavior is the way that costs respond to change in activity and decision. An understanding of cost behavior is therefore critical for managers and accountants in providing and using information to make effective decisions (Maher,
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