Final answer:
Front line managers must understand cost behaviour to effectively manage their departments and contribute accurate information for CVP analysis enabling them to calculate average profit and assess potential profit scenarios based on cost patterns.
Step-by-step explanation:
Understanding cost behaviour is crucial for front line managers as it helps them to manage their departments more effectively, and provide accurate information to accountants doing CVP analysis (Cost-Volume-Profit). By comprehending the relationship between production and costs, and recognizing that each factor of production comes with a certain price, managers can analyze short-run costs, including total cost, fixed cost, variable cost, marginal cost, and average cost. This knowledge equips them to calculate average profit and evaluate costs patterns, thus facilitating better business decisions that influence potential profits.
Lessons from alternative measures of costs also show that breaking down total costs offers distinct insights, which are helpful for managerial decision-making processes. Despite the diversity in numerical calculations for each firm, the general patterns of cost curves remain consistent across businesses, offering a reliable foundation for economic analysis. This underscores the value of such information for managers in guiding their departmental operations and contributing to the overall financial stability and success of their companies.as companies grow, the need for personal knowledge of managers' business plans diminishes since detailed information about company's revenues, costs, and profits becomes widely available. This broader availability of financial data facilitates attracting outside investors, such as bondholders and shareholders who may not have a personal connection to the managers.