First, define cost drivers and explain why they are important to management. A cost driver is a factor/activity that causes change in activity cost. Examples of cost drivers can be maintenance, research and development, administration, assembly, technology, or sales. Managers use these cost drivers to determine what it will cost to perform a certain activity. This information can help to determine if an activity will be worth the cost. In the case of production a manager can determine how much it will cost to produce the product and compare it to how much the product can be sold for to see if a profit can be made. Next, suppose you are the manager of a widget-production company. The company’s two support departments, Purchasing and Human Resources, are currently allocated amongst its three manufacturing departments: Laminating, Fabricating, and Assembling. Currently, the support department’s costs are divided equally among the three manufacturing departments. The company has conducted an analysis using the number of employees in the manufacturing
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