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Horngren'S Financial And Managerial Accounting
Found in: Page 1122

Short Answer

What is cost stickiness? Why do managers need to be aware of cost stickiness?

Answer

Variable cost and contribution margin have an inverse connection.

See the step by step solution

Step by Step Solution

Step 1: Meaning of cost stickiness

When the ratio of increase in cost due to increased sales is higher than the ratio of decrease in cost to reduce in sales is known as cost stickiness.

Step 2: Why do managers need to be aware of cost stickiness?

Due to cost stickiness, costs can behave differently than expected from their CVP analysis; that’s why managers need to be aware of cost stickiness.

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