Cost smoothing is a financial technique used to distribute expenses over multiple periods to avoid sharp fluctuations in costs. It aims to create a more consistent and predictable cost pattern, enhancing budgeting and financial planning. By spreading out costs, businesses can mitigate the impact of sudden spikes or drops in expenses, which can strain cash flow and financial stability.
Cost smoothing involves redistributing costs from high-cost periods to low-cost periods, often through the use of various accounting methods and tools. This practice enables companies to manage their finances more effectively, maintain steady operations, and make informed decisions. Overall, cost smoothing provides stability and helps businesses navigate the challenges associated with uneven expenditure patterns.
