Cost function

A cost function is a formula used to predict the cost that will be experienced at a certain activity level. This formula tends to be effective only within a range of activity levels, beyond which it no longer yields accurate results. Cost functions are typically incorporated into company budgets, so that modeled changes in sales and unit volumes will automatically trigger changes in budgeted expenses in the budget model.

Cost functions are also used in break even analysis, to determine the sales level at which a business will begin to generate a profit.