Cost behaviour
Cost behaviour describes how a cost changes as a relevant activity driver changes over a defined period and range. Models include variable, fixed, stepped fixed and semi-variable relationships; actual behaviour may be non-linear. Distinguish total cost from cost per unit and cost behaviour from traceability or function. Forecasts and flexible budgets depend on these assumptions, so identify changes in prices, capacity or efficiency before extrapolating a historical pattern.
Worked example
Fixed cost $1,000 plus variable cost $3 per unit gives total $2,500 at 500 units and $4,000 at 1,000, while average unit cost falls from $5 to $4.
Common mistake
A falling average unit cost does not necessarily mean the variable rate fell; fixed cost may simply be spread over more output.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |