Additional Evidence on the Sticky Behavior of Costs
TCU Working Paper
34 Pages Posted: 23 Mar 2003
Date Written: February 10, 2003
Recent studies in cost behavior find that selling, general, and administrative costs (SG&A) and cost of good sold (CGS) are sticky, i.e., costs increase more with activity increases than they decrease in response to equivalent activity decreases. We examine whether the magnitude of the activity changes is the driving force behind this "sticky" phenomenon. Specifically, we explore how costs behave for different ranges of sales activity changes. SG&A and CGS costs do not exhibit sticky cost behavior for small revenue changes, implying linearity of costs with respect to revenue. However, when revenue changes by more than ten percent, costs exhibit sticky behavior. We also find inter-industry differences in the stickiness behavior of both SG&A and CGS costs as well as in the determinants of sticky behavior.
Keywords: cost behavior, stickiness, relevant range, inter-industry differences
JEL Classification: M40, M46
Suggested Citation: Suggested Citation