Question

Why is managerial accounting essential to predicting cost behavior?

Answer 1

Managerial Accouting gives the accurate data to Managers on various costs and helps in taking vital decisions related to products,cost and its break even.

Different Cost such as Variable Cost,Fixed Cost and Mixed Cost are important to study and analyse for the managers to determine which product line is incurring higher cost as compared to other product lines,profits and there by what quantity to produce in order to breakeven.This analysis is called as CVP Analysis (COST VOLUME PROFIT ANALYSIS)

Studying cost structures as budgeted and comparing them with actuals gives variances which again helps the managers to take necessary steps and actions in order to curb the extra costs or restructure the product lines.

Fixed Cost remains unchanged at any given volume of production whereas the variable cost is directly proportionate to the volume of production,hence analysing both the cost helps the manager to decide the correct product mix and volumes which can generate highest amount of profits to the company utilizing the best possible resources at an optimum cost.

Hence cost behaviour pattern provided by managerial accounting is essential for managers in decsion making process,