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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. | Cost Behavior: Analysis and Use Chapter 5 Chapter 5: 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. Learning Objective 1 Understand how fixed and variable costs behave and how to use them to predict costs. 5- Learning objective number 1 is to understand how fixed and variable costs behave and how to use them to predict costs. A variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level. Types of Cost Behavior Patterns – Variable 5- 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. The . | Cost Behavior: Analysis and Use Chapter 5 Chapter 5: 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. Learning Objective 1 Understand how fixed and variable costs behave and how to use them to predict costs. 5- Learning objective number 1 is to understand how fixed and variable costs behave and how to use them to predict costs. A variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level. Types of Cost Behavior Patterns – Variable 5- 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. The Activity Base (also called a cost driver) A measure of what causes the incurrence of a variable cost Units produced Miles driven Machine hours Labor hours 5- 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. Minutes Talked Total Overage Charges on Cell Phone Bill 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. 5- 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. .