The shift from variable to fixed costs affects the effective use of strategic cost analysis. As a company's cost structure shifts from being variable (material and labor) to fixed (overhead), the perspective must be longer-range and more strategic, rather than the short-range perspective of relevant cost analysis.

Strategic cost analysis looks at long-term projections and competitive analyses, whereas relevant cost analysis focuses on short-term facts and objective data. In addition, many factors other than the short term affect profitability; these subjective factors require a longer perspective when using relevant cost analyses.

For example, if you have high fixed costs but low variable costs, then it might make sense for you to produce only enough product to meet current demandbut this decision will have long-term consequences for your business.

Explanation: Strategy has long-range perspectives based on projections and competitive analysis, just the reverse of relevant cost analysis, which has a short-term focus and deals with factual, objective data.

The focus of strategy is on long-term profitability through competitive advantage. Competitive advantage is achieved through a combination of factorscost leadership or differentiationthat provide customers with value.

You pointed general facts regarding cost analysis. What do you think is the primary cause for such shift?