Research Managers Expected Future Demand And Cost Behavior

The traditional view of cost accounting assumes that costs are solely driven by the magnitude of changes in sales. However, Anderson, Banker and Janakiraman (2003)(hereafter ABJ), argue that cost behavior is not mechanistic with respect to sales volume.Cost stickiness, an asymmetric behavior of costs,which refers to costs typically increase more for a one percent increase in activity than they decrease for an equivalent decreases in activity. However, ABJ assume that cost behavior is mechanistic when sales increase and that managerial intervention only affects costs when sales decrease. We posit and find that managerial intervention affects cost behavior in n both directions i.e. when sales increase as well as when sales decrease.This article explores the management for the future demand forecast counter tube cost adjustment of amplitude under different conditions.The paper modifies the ABJ(2003) model add managerial demand forecast. Consequently, when consider managers demand forecast, the stickiness in costs are greater than that reported in ABJ. We analyze signals, such as consecutive changes in the same direction,and GDP growth, which managers may utilize in judging future demand uncertainty. Managers for the future demand for the optimistic, pessimistic, or neutral counter tube cost under different conditions have different degree of adjustment of the conclusion. We find that managers are more likely to increase (decrease) capacity when they witness two consecutive periods of increase,i.e. when they are optimistic,(decrease, i.e. when they are pessimistic) in demand, than in cases when demand changes are in opposing directions during the two periods, i.e. when they are neutral.