Introduction to Costs

What you’ll learn to do: Classify costs to better understand the business expenses

A stack of coins next to a stack of pens on top of paper.

Managers need to analyze cost behavior for many reasons. Costs can be used in different ways in managerial accounting to glean the needed information. Understanding how costs behave can help managers control those costs, saving money for the company and increasing the profits.

Cost behavior is the concept of how costs change when there is a change in the level of activity in the company. Some costs, variable costs, will change with additional production and activity, while fixed costs occur, regardless of the level of production.  Knowing how these costs, along with sunk costs, opportunity costs and other costs will affect the break-even point and profitability of a company.

We will be discussing cost-volume-profit analysis in future units, along with many costing techniques that will help you, as a manager, make good decisions.