Answer :
Final answer:
The selection of a cost driver affects both managerial decision-making and the allocation of indirect costs, as it provides a basis for understanding and controlling costs associated with an organization's operations. The correct answer is: d) How managers make decisions and how costs are allocated.
Explanation:
The selection of a cost driver affects both how managers make decisions and how costs are allocated within an organization. Cost drivers are significant because they represent factors that influence the costs associated with various activities. A suitable cost driver must be a quantifiable metric that has a consistent relationship with the indirect costs it represents.
For instance, in the scenario of the copier cost center, the number of copies made is an intuitive cost driver for allocating indirect costs. This allocation allows managers to understand and control the full cost of the copier center operation.
Decision-making and cost allocation go hand in hand because a manager must comprehend how the indirect costs, such as a facility’s lease, utility costs, or employee benefits, are connected to the activities (cost objects) they support. The chosen methods of allocation impact how managers strategize to control costs, whether they are scrubbing expenses in the case of direct costs, or forming partnerships for leveraging economies of scale with more indirect costs.
Ultimately, the selection of a cost driver does not affect the measurement of direct costs; instead, it strongly influences managerial decision-making and the systematic allocation of indirect costs across different organizational elements, thereby shaping the financial management strategy of the organization.
