Company management plans and controls cost by analyzing cost behavior, which entails understanding of how costs change or respond to various internal and external stimuli, such as variations in production volume or activity. Analysis of cost behavior can help management understand and predict how changes in operating expenses affect net income. The net income cannot be determined without identifying the fixed and variable costs of a business company. Fixed and variable costs are expenses that are incurred in the production of goods or services. In order to determine the cost components associated with different goods or services, it is important to have a clear understanding of the concept of cost. Mixed costs combine the allocations of both fixed and variable costs. Fixed costs are expenses that are not directly related to the level of output or production. Hence, these expenses remain constant regardless of business activity, such as rent, advertising, office salaries, and office utilities. In contrast, variable costs are expenses that are directly related to the products and change with the levels of output, such as raw materials and direct labor costs. Closely related to fixed and variable costs is the concept of cost structure. For most businesses, the application of the appropriate cost structure depends on the expected or generated revenue. Businesses can either apply a fixed or variable cost structure. A fixed cost structure focuses on the fixed costs associated with a company’s operations. Regardless of sales, costs remain the same, which means increase in sales leads to high profits and decrease in sales leads to huge losses. The other alternative is a variable cost structure that focuses on the variable costs affecting a business. As sales group the costs increase, and vice versa. This cost structure provides minimal risk and greater predictability. A