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Cost behavior and cost classifications are key components to efficiently utilizing managerial accounting techniques. In order to make decisions, accountants and managers must be able to correctly identify and classify each cost associated with a given product or service.
Please note you will need to make some assumptions about the product or service. Internal product information is generally not available to the public so you will need to make some educated guesses about what may be required.
Here is an example to help get you started:
Product: toothbrush
Relationship: As the number of toothbrushes made increases, the direct materials and direct labor will also increase to meet the demand. Electricity is required to operate other aspects in addition to the equipment so this a shared cost across all functions. Electricity is necessary cost for all operations and not solely for the production of toothbrushes.
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