The effect of asymmetric cost behavior on cost-volume-profit analysis and its Repercussions on the Management Accounting Information Quality -An Applied research

Abstract

The objective of this research is to provide further empirical evidence on the asymmetric cost behavior in Saudi industrial companies to measure the effect of including this behavior on the Cost-Volume-Profit analysis estimates and its repercussions on the Management Accounting Information Quality.

     To achieve that, an applied research has been conducted on the data of (42) industrial companies registered at Saudi Stock Exchange, with (322) firm-year observations, during the period 2007-2015. The research used multiple regression analysis to test the research hypotheses. The results of the research concluded that the operating costs in the Saudi industrial companies show an asymmetric behavior - sticky, and that there is a positive significant relationship between the size of the adjustment costs and the degree of cost stickiness. The results also suggest that conditional on prior sales increased (decreased), costs of operating in the current period is sticky (anti-sticky). The results of the research also provided evidence that the asymmetric cost behavior lead to major conceptual changes in many applications of cost-volume-profit analysis (such as break-even analysis and the use of flexible budgeting for planning and control).