Cost Behavior Cost behavior describes the manner in which costs change as a related activity changes. Understanding cost behavior allows managers to make informed decisions on analyzing past performance and budgeting for future performance. Vital to understanding cost behavior is being able to assign all your costs to the units of goods and/or services that your company produces. Understanding the behavior of a cost depends on cost drivers and relevant range. Cost driver: Also referred to as an "activity. base, " the cost driver is the item on which you allocate costs. When increased or decreased, the cost driver determines the cost for variable or fixed costs. For example, if you run a consulting business, you pay your employees by the hour. Your main cost is the direct labor of your employees, so the driver will be billable hours on the job. Though In some businesses the driver is the number of customers served, in consulting it is the hourly usage of your employees regardless of how many clients there are. What is the cost driver for each business and its associated costs