Measurement of cot behaviour.docx - Measurement of cost behaviour Measurement of cost behaviour means understanding and quantifying how activities of an

Measurement of cot behaviour.docx - Measurement of cost...

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Measurement of cost behaviour Measurement of cost behaviour means understanding and quantifying how activities of an affect level levels of cost. Cost drivers and cost behaviors Types of cost behaviour There are two patterns of cost behaviour: fixed cost and variable cost. In addition to these pure versions of cost, there are two additional types of cost combine both characteristics of both fixed and variable cost behaviour. These are step cost and mixed cot. Step cost: costs that change abruptly at intervals of activity because the resources and their costs come in indivisible chunks. Relevant range ------------------------------------------------fixed cost Example: lease expenses. Mixed cost: contains both fixed and variable cost cot behaviour. It is also called as semi variable or semi fixed cost. Y SVC (fixed at the beginning Variable after that. cost O X
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Management influence in cost behaviour: In addition to measuring and evaluating current cost behaviour, managers can influence cost behaviour through decisions about such factors as product or service attributes, capacity, technology, and policies to create incentive to control costs. (1) Product and service decisions and the value chain: through the value chain, manager’s influence cost behaviour. This influence occurs through their choices of process and product design, quality level, product features, distribution channels, and so on. Each of these decisions should be made on the basis of the cost benefit analysis. Capacity costs: capacity costs are the fixed cost of being able to achieve a desired level of production or to provide desired level of service which maintaining product or service attributes, such as quality. They are strategic decision about the scale and scope of an organization’s activities generally results in fixed level of capacity costs. As being huge
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