Essay: Forecasting Future Cost Behavior

Sample Essay

When the variable cost has been estimated it is simply deducted from total cost to estimate fixed costs. This separation of costs is quite useful as it can be used properly to forecast future cost behaviour and apply budgeting techniques more appropriately for fixed and variable elements of total cost.

The fixed and variable cost components in an organisation as a whole and in a specific process of the organisation can be easily identified and separated from costs which include both fixed and variable elements such as semi variable or fixed cost. It is concluded from the analysis of semi variable cost that cost behaviour depends highly on level of activity and fixed and variable elements of cost should be separated for better and efficient forecasting and budgeting of future costs as organisations can control variable costs up to a large extent. Organisations can apply one of the several methods of cost separation on semi variable costs in order to estimate total fixed costs and variable cost per unit.

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