This cost behavior analysis template is a tool used by management to understand how a company operates costs change in relation to a change in its level of activity. It is a good way to visualize economies of scale. For example, if you want to double the production of a product, you can analyze the cost behavior of the various factors of production. These costs may include direct materials, direct labor, and overhead costs that are incurred from developing a product. It is also a good way to budget what will be the additional resources that will be required. Cost behavior analysis can also be used to spot inefficiencies of production. Cost analysis can be performed through various mathematical cost functions. Cost functions are usually given in the form of y = mx + b, and can be plotted on a graph to evaluate how cost changes with the level of activity performed.
Quantitative Cost AnalysisOne type of quantitative analysis methods commonly used by management is the high-low approach. This method uses only the highest and lowest cost driver values and its respective costs to come up with the cost function. This is a simple way to determine the relationship between the driver and the cost. On the other hand, regression analysis is another quantitative cost approach to measure the change in the dependent variable (cost) associated with changes in the independent variables (cost drivers). Tools such as Microsoft Excel can be used to perform regression analysis.
More Resources on Cost Behavior AnalysisRead CFI's guide to learn about the concept and application of this type of analysis.
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