Cost stickiness behavior and financial crisis: Evidence from the UK chemical industry

Abstract

Traditional cost behavior assumes that variable costs vary symmetrically according to changes in the level of activity. This means that variable costs change proportionately with changes in the cost driver. The key notion in symmetric cost behavior is that variable costs change identically by the same percentage in the two directions (i.e., upward and downward in cost driver) regardless whether the response rate of variable costs is less, equal or more than the rate of change in cost driver (Balakrishnan & Gruca, 2008; Malik, 2012). However, fixed costs remain constant in total despite changes in the cost driver within the relevant range. On the other hand, some costs are neither precisely variable nor fixed; this type of cost known as mixed cost. According to traditional analysis of cost behavior, managerial decisions (i.e., pricing, cost planning, cost control, budgeting, cost variances, cost standardization, cost reduction and cost allocation) are, precisely, based on prior analysis of cost behavior (Novák et al., 2018). The recent stream of research in cost accounting has criticized prior thinking in terms of traditional cost behavior. More specifically, many researchers have provided empirical evidence that emphasize the asymmetric cost behavior throughout Abstract