Additional Evidence on the Sticky Behavior of Costs

TCU Working Paper

34 Pages Posted: 23 Mar 2003

See all articles by Marcia Lynne Weidenmier

Marcia Lynne Weidenmier

Texas Christian University - Department of Accounting

Chandra Subramaniam

California State University, Northridge - David Nazarian College of Business and Economics

Date Written: February 10, 2003

Abstract

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

Weidenmier, Marcia Lynne and Subramaniam, Chandra, Additional Evidence on the Sticky Behavior of Costs (February 10, 2003). TCU Working Paper. Available at SSRN: https://ssrn.com/abstract=369941 or http://dx.doi.org/10.2139/ssrn.369941

Marcia Lynne Weidenmier (Contact Author)

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7578 (Phone)
817-257-7227 (Fax)

Chandra Subramaniam

California State University, Northridge - David Nazarian College of Business and Economics ( email )

Northridge, CA 91330
United States

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