It is very easy to check the behaviour of any human being. If a person respects others, it means his behaviour is good. Otherwise, we can say that person is not of good behaviour. Actually human behaviour is affected from environment in which that person is living. In accounting, we study cost behaviour.
Meaning of Cost Behaviour
Cost behaviour is that part of our study in which we see the changes of cost on the basis of our activities. Some expenses are easily changed when we decrease or increase the activities. For example, if we increase the area of house building, we need more bricks. It means our cost of bricks will be more. In simple words, raw material cost behaviour is fully dependent our production activities. These costs are the part of variable cost. But some cost behaviour is independent from activities production. But it does not mean that it is not affected from activities. For example, company pay salary to employees on the basis of days. Increase or decrease in production does not affect the salary but activities in 26 days are recorded in SWOT report. So, if employee will not perform, his demotion is sure. With this, salary will decrease.
Benefits of Cost Behaviour Accounting
Following are the main benefits of cost behaviour accounting:
1. To prepare budgets
If we will know the cost behaviour, we can make better budgets. Budgets are just estimation of cost. When we will find the nature of cost and its behaviour with different activities. We can estimate cost if we increase or decrease same activity.
2. To predict cash flows
To estimate cash flows is also easy with cost behaviour accounting.
3. To plan dividend payments
Dividend is the return on invested money in share capital. From company point of view, it is cost of share capital. On the basis of operation activities and performance activities, we can estimate this cost of share capital.
4. To establish selling prices
We say cost plus profit as selling price. After estimation of cost through cost behaviour accounting, it will be easy to find selling price by adding some margin.
Meaning of Cost Behaviour
Cost behaviour is that part of our study in which we see the changes of cost on the basis of our activities. Some expenses are easily changed when we decrease or increase the activities. For example, if we increase the area of house building, we need more bricks. It means our cost of bricks will be more. In simple words, raw material cost behaviour is fully dependent our production activities. These costs are the part of variable cost. But some cost behaviour is independent from activities production. But it does not mean that it is not affected from activities. For example, company pay salary to employees on the basis of days. Increase or decrease in production does not affect the salary but activities in 26 days are recorded in SWOT report. So, if employee will not perform, his demotion is sure. With this, salary will decrease.
Benefits of Cost Behaviour Accounting
Following are the main benefits of cost behaviour accounting:
1. To prepare budgets
If we will know the cost behaviour, we can make better budgets. Budgets are just estimation of cost. When we will find the nature of cost and its behaviour with different activities. We can estimate cost if we increase or decrease same activity.
2. To predict cash flows
To estimate cash flows is also easy with cost behaviour accounting.
3. To plan dividend payments
Dividend is the return on invested money in share capital. From company point of view, it is cost of share capital. On the basis of operation activities and performance activities, we can estimate this cost of share capital.
4. To establish selling prices
We say cost plus profit as selling price. After estimation of cost through cost behaviour accounting, it will be easy to find selling price by adding some margin.
It's a very informative post.
ReplyDeleteThanks for sharing