1. Cost Behavior: Analysis and Use
Chapter 3: Cost Behavior: Analysis and Use. Managers who understand how costs behave are better able to predict costs and make decisions under various circumstances. This chapter explores the meaning of fixed, variable, and mixed costs (the relative proportions of which define an organization’s cost structure). It also introduces a new income statement called the “contribution approach.”
Chapter 3

2. 5-2
Learning Objective 1
Understand how fixed and variable costs behave and how to use them to predict costs.
Learning objective number 1 is to understand how fixed and variable costs behave and how to use them to predict costs.

3. Types of Cost Behavior Patterns – Variable
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Types of Cost Behavior Patterns – Variable
A variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level.
We discussed this table in an earlier chapter. A variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level.

4. The Activity Base (also called a cost driver)
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The Activity Base (also called a cost driver)
Units produced
Machine hours
A measure of what causes the incurrence of a variable cost
An activity base (also called a cost driver) is a measure of what causes the incurrence of variable costs. As the level of the activity base increases, the total variable cost increases proportionally.
Units produced (or sold) is not the only activity base within companies. A cost can be considered variable if it varies with activity bases such as miles driven, machine hours, or labor hours.
Miles driven
Labor hours

5. True Variable Cost – An Example
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True Variable Cost – An Example
As an example of an activity base, consider overage charges on a cell phone bill. The activity base is the number of minutes used above the allowed minutes in the calling plan.
Total Overage Charges on Cell Phone Bill
As an example of an activity base, consider overage charges on a cell phone bill. The activity base is the number of minutes used above the allowed minutes in the calling plan.
Minutes Talked

6. Types of Cost Behavior Patterns – Variable
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Types of Cost Behavior Patterns – Variable
Variable costs remain constant if expressed on a per unit basis.
Note that variable costs remain constant if expressed on a per unit basis.

7. Variable Cost Per Unit – An Example
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Variable Cost Per Unit – An Example
Referring to the cell phone example, the cost per overage minute is constant, for example 45 cents per overage minute.
Per Minute Overage Charge
Remember that a variable cost remains constant if expressed on a per unit basis. Referring to the cell phone example, the cost per overage minute is constant, for example 45 cents per overage minute.
Minutes Talked

8. Extent of Variable Costs
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Extent of Variable Costs
The proportion of variable costs differs across organizations. For example . . .
A public utility like Florida
Power and Light,
with large investments in
equipment, will tend to have
fewer variable costs.
A manufacturing company
like Black and Decker will often have many variable costs.
The proportion of variable costs differs across organizations. For example, a public utility like Florida Power and Light, with large investments in equipment, will tend to have fewer variable costs. A manufacturing company like Black and Decker will often have many variable costs associated with the manufacture and distribution of its products to customers. A merchandising company like Wal-Mart usually has a high proportion of variable costs such as the cost of merchandise purchases. Some service companies, such as restaurants, have a high proportion of variable costs due to their raw material costs. Other service companies, such as an architectural firm, have a high proportion of fixed costs in the form of highly trained salaried employees.
A merchandising company
like Wal-Mart usually has a high
proportion of variable costs,
like cost of sales.
Some service companies
have high variable costs,
while other service
companies have high
fixed costs.

9. Examples of Variable Costs
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Examples of Variable Costs
Merchandising companies – cost of goods sold.
Manufacturing companies – direct materials, direct labor, and variable overhead.
Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs such as invoicing.
Service companies – supplies, travel, and clerical.
Here are some examples of variable costs that are likely present in many types of businesses.
Merchandising companies  cost of goods sold.
Manufacturing companies  direct materials, direct labor, and variable overhead.
Merchandising and manufacturing companies  commissions, shipping costs, and clerical costs such as invoicing.
Service companies  supplies, travel, and clerical.

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True Variable Costs
The amount of a true variable cost used during the period varies in direct proportion to the activity level. The overage charge on a cell phone bill was one example of a true variable cost.
Direct material is another example of a cost that behaves in a true variable pattern.
Cost
The amount of a true variable cost used during the period varies in direct proportion to the activity level.
The overage charge on a cell phone bill was one example of a true variable cost.
Direct material is an example of a cost that behaves in a true variable pattern. Direct materials purchased but not used can be stored and carried forward to the next period of inventory.
Volume

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Step-Variable Costs
A step-variable cost is a resource that is obtainable only in large chunks (such as maintenance workers) and whose costs change only in response to fairly wide changes in activity.
Volume
Cost
A step-variable cost is a resource that is obtainable only in large chucks and whose costs change only in response to fairly wide changes in activity. For example, maintenance workers are often considered to be a variable cost, but this labor cost does not behave as a true variable cost.

12. 5-12
Step-Variable Costs
Small changes in the level of production are not likely to have any effect on the number of maintenance workers employed.
Volume
Cost
Small changes in the level of production are not likely to have any effect on the number of maintenance workers employed.

13. 5-13
Step-Variable Costs
Only fairly wide changes in the activity level will cause a change in the number of maintenance workers employed.
Volume
Cost
Only fairly wide changes in the activity level will cause a change in the number of maintenance workers employed. For example, maintenance workers are obtainable only in large chunks of a whole person who is capable of working approximately 2,000 hours a year.

14. The Linearity Assumption and the Relevant Range
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The Linearity Assumption and the Relevant Range
Relevant Range
A straight line closely approximates a curvilinear variable cost line within the relevant range.
Economist’s Curvilinear Cost Function
Total Cost
Accountant’s Straight-Line Approximation (constant unit variable cost)
Part I
Economists correctly point out that many costs which accountants classify as variable costs actually behave in a curvilinear fashion.
Part II
Nonetheless, within a narrow band of activity known as the relevant range, a curvilinear cost can be satisfactorily approximated by a straight line.
Part III
The relevant range is that range of activity within which the assumptions made about cost behavior are valid.
Activity

15. Types of Cost Behavior Patterns – Fixed
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Types of Cost Behavior Patterns – Fixed
A fixed cost is a cost whose total dollar amount remains constant as the activity level changes.
Now, let’s look at fixed costs. A fixed cost is a cost whose total dollar amount remains constant as the activity level changes.

16. Total Fixed Cost – An Example
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Total Fixed Cost – An Example
For example, your cell phone bill probably includes a fixed amount related to the total minutes allowed in your calling plan. The amount does not change when you use more or less allowed minutes.
Monthly Basic Cell Phone Bill
For example, your cell phone bill probably includes a fixed amount related to the total minutes allowed in your calling plan. The amount does not change when you use more or less allowed minutes.
Number of Minutes Used within Monthly Plan

17. Types of Cost Behavior Patterns – Fixed
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Types of Cost Behavior Patterns – Fixed
Average fixed costs per unit decrease as the activity level increases.
Average fixed costs per unit decrease as the activity level increases.

18. Fixed Cost Per Unit Example
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Fixed Cost Per Unit Example
For example, the fixed cost per minute used decreases as more allowed minutes are used.
Cost Per Cell Phone Call
For example, the fixed cost per minute used decreases as more allowed minutes are used.
As you make more and more allowed calls, the basic rate cost per call decreases. If your basic rate is $39 per month and you make one allowed call per month, the average basic rate is $39 per call. However, if you make 100 allowed calls per month, the average basic rate per call drops to 39 cents per call.
Number of Minutes Used within Monthly Plan

19. Types of Fixed Costs Committed Discretionary Examples Examples
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Types of Fixed Costs
Committed
Long-term, cannot be significantly reduced in the short term.
Discretionary
May be altered in the short-term by current managerial decisions
One type of fixed cost is known as committed fixed costs. These are long-term fixed costs that cannot be significantly reduced in the short term. Some examples include depreciation on buildings and equipment and real estate taxes on factory property.
Another type of fixed cost is known as discretionary fixed costs. These fixed costs may be altered in the short-term by current management decisions. Some examples of discretionary fixed costs include advertising and research and development costs.
A cost may be discretionary or committed depending upon management’s strategy. For example, some construction companies may layoff workers during months with minimal customer demand. However, other construction companies may opt to retain their workers all year.
Examples
Depreciation on Buildings and Equipment and Real Estate Taxes
Examples
Advertising and Research and Development

20. The Trend Toward Fixed Costs
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The Trend Toward Fixed Costs
The trend in many industries is toward greater fixed costs relative to variable costs.
As machines take over many mundane tasks previously performed by humans, “knowledge workers” are demanded for their minds rather than their muscles.
Knowledge workers tend to be salaried, highly-trained and difficult to replace. The cost of compensating these valued employees
is relatively fixed
rather than variable.
Part I
In many industries, we see a trend toward greater fixed costs, relative to variable costs. In the past fifteen years, we have seen computers and robotics take over many mundane tasks previously performed by humans. For example, H&R Block employees used to fill out tax returns for customers by hand. Now, computer software is used to complete tax returns. Safeway and Kroger employees used to key-in prices by hand on cash registers. Now, barcode readers enter price and other product information automatically.
Part II
In today’s world economy, knowledge workers are in demand for their experience and knowledge rather than their muscle. Most knowledge workers tend to be salaried, highly trained and very difficult to replace. The cost of these valued employees tends to be fixed rather than variable.

21. Is Labor a Variable or a Fixed Cost?
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Is Labor a Variable or a Fixed Cost?
The behavior of wage and salary costs can differ across countries, depending on labor regulations, labor contracts, and custom.
In France, Germany, China, and Japan, management has little flexibility in adjusting the size of the labor force. Labor costs are more fixed in nature.
In the United States and the United Kingdom, management has greater latitude. Labor costs are more variable in nature.
In France, Germany, China, and Japan, management has little flexibility in adjusting the size of the labor force; hence, labor costs are more fixed in nature.
In the United States and United Kingdom, management typically has much greater latitude to adjust the size of the labor force; hence, labor costs are more variable in nature.
Within countries managers can view labor costs differently depending upon their strategy. Nonetheless, most companies in the United States continue to view direct labor as a variable cost.
Within countries managers can view labor costs differently
depending upon their strategy. Most companies in the
United States continue to view direct labor as a variable cost.

22. Fixed Costs and the Relevant Range
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Fixed Costs and the Relevant Range 90
The relevant range of activity for a fixed cost is the range of activity over which the graph of the cost is flat.
Relevant Range 60
Rent Cost in Thousands of Dollars
The relevant range of activity for a fixed cost is the range of activity over which the graph of the cost is flat. 30
, , , Rented Area (Square Feet)

23. Fixed Costs and the Relevant Range
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Fixed Costs and the Relevant Range
For example, assume office space is available at a rental rate of $30,000 per year in increments of 1,000 square feet.
Fixed costs would increase in a step fashion at a rate of $30,000 for each additional 1,000 square feet.
For example, assume office space is available at a rental rate of $30,000 per year in increments of 1,000 square feet.
Fixed costs would increase in a step fashion at a rate of $30,000 for each additional 1,000 square feet.

24. Fixed Costs and the Relevant Range
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Fixed Costs and the Relevant Range
Step-variable costs can be adjusted more quickly as conditions change and . . .
The width of the activity steps is much wider for the fixed cost.
The question becomes, how do changes in fixed costs outside the relevant range differ from step-variable costs? While this step-function pattern appears similar to the idea of step-variable costs, there are two important differences between step-variable costs and fixed costs.
First, step-variable costs can often be adjusted quickly as conditions change, whereas fixed costs cannot be changed easily.
The second difference is that the width of the steps for fixed costs is wider than the width of the steps for step-variable costs. For example, a step-variable cost such as maintenance workers may have steps with a width of 40 hours a week. However, fixed costs may have steps that have a width of thousands or tens of thousands of hours of activity.
How does this step-function pattern differ from a step-variable cost?

25. Which of the following statements about cost behavior are true?
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Quick Check 
Which of the following statements about cost behavior are true?
Fixed costs per unit vary with the level of activity.
Variable costs per unit are constant within the relevant range.
Total fixed costs are constant within the relevant range.
Total variable costs are constant within the relevant range.
See how you do on this question. There can be more than one correct answer. Be careful and take your time.

26. Which of the following statements about cost behavior are true?
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Quick Check 
Which of the following statements about cost behavior are true?
Fixed costs per unit vary with the level of activity.
Variable costs per unit are constant within the relevant range.
Total fixed costs are constant within the relevant range.
Total variable costs are constant within the relevant range.
Answer d is not correct because total variable costs increase as activity increases, within the relevant range, and decrease as activity decreases, within the relevant range.

27. Mixed Costs (also called semivariable costs)
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Mixed Costs (also called semivariable costs)
A mixed cost contains both variable and fixed elements. Consider the example of utility cost. X Y
Total mixed cost
Total Utility Cost
Mixed costs (also called semivariable costs) contain both variable and fixed cost elements.
The graph depicts the mixed costs of a normal utility bill. As illustrated in the graph, a utility bill contains a fixed and a variable cost component.
The fixed portion of the utility bill is constant regardless of kilowatt hours consumed. This cost represents the minimum cost that is incurred to have the service ready and available for use.
The variable portion of the utility bill varies in direct proportion to the consumption of kilowatt hours.
Variable Cost per KW
Fixed Monthly Utility Charge
Activity (Kilowatt Hours)

28. Fixed Monthly Utility Charge
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Mixed Costs X Y
Total mixed cost
Total Utility Cost
The mixed cost line can be expressed with the equation Y = a + bX. This equation should look familiar, from your algebra and statistics classes.
In the equation, Y is the total mixed cost; a is the total fixed cost (or the vertical intercept of the line); b is the variable cost per unit of activity (or the slope of the line), and X is the actual level of activity.
In our utility example, Y is the total mixed cost; a is the total fixed monthly utility charge; b is the cost per kilowatt hour consumed, and X is the number of kilowatt hours consumed.
Variable Cost per KW
Fixed Monthly Utility Charge
Activity (Kilowatt Hours)

29. Mixed Costs – An Example
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Mixed Costs – An Example
If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, and your monthly activity level is 2,000 kilowatt hours, what is the amount of your utility bill?
Y = a + bX
Y = $40 + ($0.03 × 2,000)
Y =
$100
Part I
Read through this short question to see if you can calculate the total utility bill for the month. Part II
The total bill is $100. How did you do?

30. Analysis of Mixed Costs
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Analysis of Mixed Costs
Account Analysis and the Engineering Approach
In account analysis, each account is
classified as either variable or fixed based
on the analyst’s knowledge of how
the account behaves.
The engineering approach classifies costs based upon an industrial engineer’s evaluation of production methods, and material, labor and overhead requirements.
In account analysis, each account under consideration is classified as variable and fixed based on the analyst’s prior knowledge about how costs behave. This approach is limited in value in the sense that it glosses over the fact that some accounts may have both fixed and variable components.
The engineering approach classifies costs based upon an industrial engineer’s evaluation of production methods, materials specifications, labor requirements, equipment usage, power consumption, and so on. This approach is particularly useful when no past experience is available concerning activity and costs.

31. Why and how to reduce fixed costs or switch them to variable costs?
Typical fixed costs: production facilities, rentals, employees salaries and related benefits and utilities
Converting them into variable may reduce risk of financial commitment and provide flexibility of capacity utilization
Outsourcing
Business with fast and regular change and/or large varieties of products most likely will benefit from this approach (e.g. Nike and Apple)
Non-core business functions with lower value-add to majority customers (e.g. call centers for enquiries, 3rd party logistics, broker- dealers’ securities back office operations)
Offshoring
Honda and Toyota Thailand plants
HSBC back office functions in China
Converting fixed costs to variable costs through outsourcing (e.g. engaging a third party to perform the task) provides the needed flexibility, and free-up capital commitments and investments in
a) plant and machinery. Services and production are tied to the delivery of services and products instead of capacity requirement for the peak demand. Typical examples include
Nike outsourcing most of its production to different suppliers who can handle different designs and materials
Apple outsourcing its production to Foxconn in China
b) non-core business activities so that the company can focus on its strength and core business. Examples include
Call centers for banks and telcos being sourced to companies in India and the Philippines
Third party logistics for delivery and storage of goods and materials locally and overseas
Securities companies’ back office operations being outsourced to banks such as HSBC back office services.
Offshoring (e.g. relocating production facilities to cheaper overseas locations) may help reduce operating costs for core business functions without relying on 3rd party suppliers. Relocate production facilities to China, Vietnam, India …. May help companies benefit from lower operating costs.
Honda and Toyota have manufacturing facilities in Thailand to supply cars for different Asia-pacific countries
HSBC performs some of its worldwide back office functions in China

32. Use a scattergraph plot to diagnose cost behavior.
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Learning Objective 2
Use a scattergraph plot to diagnose cost behavior.
Learning objective number 2 is to use a scattergraph plot to diagnose cost behavior.

33. The Scattergraph Method
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The Scattergraph Method
Plot the data points on a graph (Total Cost Y vs. Activity X). *
Maintenance Cost 1,000’s of Dollars 10 20
Patient-days in 1,000’s X Y
A scattergraph plot (also called the quick-and-dirty method) is a quick and easy way to isolate the fixed and variable components of a mixed cost.
The first step when using this method to analyze a mixed cost is to plot the data on the scattergraph. The cost, which is known as the dependent variable, is plotted on the Y (vertical) axis. The activity, which is known as the independent variable, is plotted on the X (horizontal) axis.
The second step is to examine the dots on the scattergraph to see if they are linear, such that a straight line can be drawn that approximates the relation between cost and activity. If the dots are not linear, do not analyze the data any further. Instead, search for another independent variable that bears a stronger linear relationship with the dependent variable.
If there does appear to be a linear relationship between the level of activity and cost, we will continue our analysis.

34. The Scattergraph Method
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The Scattergraph Method
Draw a line through the data points with about an equal number of points above and below the line. *
Maintenance Cost 1,000’s of Dollars 10 20
Patient-days in 1,000’s X Y
The third step is to draw a straight line where, roughly speaking, an equal number of points reside above and below the line. Make sure that the straight line goes through at least one data point on the scattergraph.

35. The Scattergraph Method
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The Scattergraph Method
Use one data point to estimate the total level of activity and the total cost. *
Maintenance Cost 1,000’s of Dollars 10 20
Patient-days in 1,000’s X Y
Total maintenance cost = $11,000
Intercept = Fixed cost: $10,000
Part I
The fourth step is to identify the Y intercept. This is the point where the straight line crosses the Y axis determines the estimate of total fixed costs. In this case, the fixed costs are $10,000.
Part II
The fifth step is to estimate the variable cost per unit of the activity. Select one data point on the scattergraph that intersects the straight line. Determine the total cost ($11,000) and the total activity level (800 patient-days) at the chosen point.
Patient days = 800

36. The Scattergraph Method
5-36
The Scattergraph Method
Make a quick estimate of variable cost per unit and determine the cost equation.
Variable cost per unit =
$1,
= $1.25/patient-day
Part I
Subtract the fixed costs from the total costs to arrive at the total variable costs ($1,000) for the chosen activity level.
Part II
Divide the total variable costs by the activity level at the chosen point. This is the variable cost per unit of activity ($1.25). Construct an equation that can be used to estimate total costs at any activity level.
Part III
Our maintenance cost equation tells us that the Y, the total maintenance cost, is $10,000, the total fixed cost, plus $1.25 times X, the number of patient days.
Y = $10,000 + $1.25X
Number of patient days
Total maintenance cost

37. Analyze a mixed cost using the high-low method.
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Learning Objective 3
Analyze a mixed cost using the high-low method.
Learning objective number 3 is to analyze a mixed cost using the high-low method.

38. The High-Low Method – An Example
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The High-Low Method – An Example
Assume the following hours of maintenance work and the total maintenance costs for six months.
The high-low method can be used to analyze mixed costs if a scattergraph plot reveals a linear relationship between the X and Y variables. For illustrative purposes, assume the following information.

39. The High-Low Method – An Example
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The High-Low Method – An Example
The variable cost per hour of maintenance is equal to the change in cost divided by the change in hours.
Part I
The first step is to choose the data points pertaining to the highest and lowest activity levels. In this case, the high level of activity was in June at 850 hours of maintenance and the low level of activity was in February with 450 hours of maintenance. Notice that this method relies upon two data points to estimate the fixed and variable portions of a mixed cost, as opposed to one data point with the scattergraph method.
Part II
The second step is to determine the total costs associated with the two chosen points. We incurred costs of $9,800 at the high level of activity and $7,400 at the low level of activity.
The third step is to calculate the change in cost between the two data points. The change in maintenance hours was 400 hours and the change in maintenance dollars was $2,400. Notice, this method relies upon two data points to estimate the fixed and variable portions of a mixed costs, as opposed to one data point with the scattergraph method.
For this example, we divide $2,400 by 400 and determine that the variable cost per hour of maintenance is $6.00.
= $6.00/hour
$2,

40. The High-Low Method – An Example
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The High-Low Method – An Example
Total Fixed Cost = Total Cost – Total Variable Cost
Part I
The fourth step is to take the total cost at either activity level (in this case, $9,800).
Part II
Deduct the variable cost component ($6 per hour times 850 hours) for the total cost of $9,800.
Part III
The difference represents the estimate of total fixed costs ($4,700).
Total Fixed Cost = $9,800 – ($6/hour × 850 hours)
Total Fixed Cost = $9,800 – $5,100
Total Fixed Cost = $4,700

41. The High-Low Method – An Example
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The High-Low Method – An Example
The fifth step is to construct an equation that can be used to estimate the total cost at any activity level (Y = $4,700 + $6.00X). The basic equation of Y is equal to $4,700 (the total fixed cost) plus $6 times the actual level of activity.
You can verify the equation by calculating total maintenance costs at 450 hours, the low level of activity. It will be worth your time to make the calculation.
Y = $4,700 + $6.00X
The Cost Equation for Maintenance

42. 5-42
Quick Check 
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
See if you can apply what we have just discussed to determine the variable portion of sales salaries and commissions for this company.

43. 5-43
Quick Check 
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the variable portion of sales salaries and commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit
$4,000 ÷ 40,000 units = $0.10 per unit
The correct answer is variable sales salaries and commission costs of 10 cents per unit.

44. 5-44
Quick Check 
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000
Using the same data, calculate the total fixed cost portion of sales salaries and commissions.

45. 5-45
Quick Check 
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000
The calculation of the answer is a bit more complex, but we see that total fixed cost equals $2,000.

46. Prepare an income statement using the contribution format.
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Learning Objective 4
Prepare an income statement using the contribution format.
Learning objective number 4 is to prepare an income statement using the contribution format.

47. The Contribution Format
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The Contribution Format
Let’s put our knowledge of cost behavior to work by preparing a contribution format income statement.
The contribution approach provides an income statement format geared directly to cost behavior, which has been the focus of discussion in this chapter.

48. The Contribution Format
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The Contribution Format
The contribution margin format emphasizes cost behavior. Contribution margin covers fixed costs and provides for income.
The contribution approach separates costs into fixed and variable categories. Sales less variable costs equals contribution margin. The contribution margin less fixed costs equals net operating income.

49. Uses of the Contribution Format
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Uses of the Contribution Format
The contribution income statement format is used as an internal planning and decision-making tool. We will use this approach for:
Cost-volume-profit analysis (Chapter 4).
Budgeting (Chapter 10).
Segmented reporting of profit data (Chapter 13).
Special decisions such as pricing and make-or-buy analysis (Chapter 14).
This approach is used as an internal planning and decision-making tool. For example, this approach is useful for and discussed further in Cost-volume-profit analysis (Chapter 4), Budgeting (Chapter 10), Segmented reporting of profit data (Chapter 13), Special decisions such as pricing and make or buy analysis (Chapter 14).

50. The Contribution Format
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The Contribution Format
The contribution format allocates costs based on cost behavior. The contribution approach differs from the traditional approach illustrated in an earlier chapter.
The traditional approach organizes costs in a functional format. Costs relating to production, administration, and sales are grouped together without regard to their cost behavior.
The traditional approach is used primarily for external reporting purposes.
Used primarily for external reporting.
Used primarily by management.

51. End of Chapter 3
End of chapter 3.