Configure Cost Classification

B.

To classify costs according to their behavior in relation to changes in key business activities, you should configure cost behavior in the Microsoft Dynamics Finance 365 system.

Cost behavior refers to how costs change as business activity levels fluctuate. In other words, it describes how much costs will increase or decrease when certain business activities increase or decrease. Understanding cost behavior is essential for accurate budgeting, forecasting, and decision-making.

Cost classification is the process of grouping costs into categories based on their characteristics, such as function, product, or department. It is important for tracking and analyzing expenses. However, it does not specifically address how costs behave in relation to changes in business activity levels.

Allocation base refers to the factor used to allocate indirect costs to products, services, or departments. It is also important for accurate cost tracking, but it is not directly related to cost behavior.

Cost elements are the individual components of costs, such as labor, materials, or overhead. They are important for understanding the makeup of total costs, but they do not specifically address how costs behave in relation to changes in business activity levels.

Therefore, the correct answer is B. Cost behavior. By configuring cost behavior in the Microsoft Dynamics Finance 365 system, you can classify costs according to how they behave in relation to changes in key business activities, such as sales volume, production output, or number of customers. This will help you better understand how costs will fluctuate based on different levels of activity and make more informed decisions about budgeting and forecasting.