The relationship between cost and activity is known as:

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Question restatement: The relationship between cost and activity is known as:

Option 1: cost analysis. This term generally refers to examining costs to understand components, allocate resources, or assess efficiency, but it does not specifically denote how costs change with activity levels. It’s a broader evaluative process rather than the established label for cost–activity patterns.

Option 2: cost estimation. Cost estimation involves predicting future costs based on data and assumptions. While related to costs, it emphasizes predicting amounts rather than describing the fundamental relationship between cost and activity levels.

Option 3: cost prediction. Similar to estimation, cost prediction focuses on forecasting costs, often for budgeting or planning purposes. It does not define how costs behave as activity changes, but rather attempts to forecast what those costs will be.

Option 4: cost behavior. This term literally refers to how costs change in response to changes in activity level. It is the standard terminology used in managerial accounting to describe fixed, variable, and mixed costs and how they behave as activity varies.

Why the selected option fits: The core idea of linking cost changes to activity levels is encapsulated by the concept of cost behavior, which classifies costs by their response to activity and is fundamental to cost-volume-profit analysis and budgeting.

Why the other options are not correct: The first option, cost analysis, is a broad analytical activity rather than the specific relationship. The second and third options, cost estimation and cost prediction, emphasize forecasting amounts rather than characterizing how costs respond to activity changes. Each of these terms serves a distinct purpose in costing practices but does not name the fundamental relationship between cost and activity that cost behavior describes.

In summary, the best match for describing how costs relate to changes in activity is the notion of cost behavior, whereas the other terms describe broader analyses, forecasting, or prediction tasks rather than the behavioral relationship itself.

The relationship between cost and activity is known as:

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