There Are Four Common Cost Behavior Patterns That Serve as the Foundation

question 11

Essay

There are four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis.
a.Explain the term cost behavior.
b.List the four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis and give an example of each type of cost classified by behavior.
c.Explain the relationship between level of activity and each of the four types of cost behavior.

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Definitions:

Return on Assets

A financial ratio that shows the percentage of profit a company earns in relation to its overall resources.

Accounts Receivable

Money that customers are required to pay to a company for goods or services that they have received or used, but have not yet paid for.

Inventory

The total amount of goods and materials held by a company intended for sale or used in production.

Net Fixed Assets

Net Fixed Assets represent the total value of a company's property, plant, and equipment minus any depreciation, amortization, and impairment charges that have been taken against these assets.