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What Are the Three Criteria a Company Should Use to Evaluate

question 131

Essay

What are the three criteria a company should use to evaluate and choose a cost driver? Briefly explain each of the three criteria.


Definitions:

Production Functions

A mathematical expression that describes the relationship between inputs and the maximum output that can be produced with those inputs.

Scale

The size of a business or operation, which can impact its production cost, efficiency, and ability to compete in the market.

Returns to Scale

The variation in outcome that occurs when all inputs used in the manufacturing process are increased by the same proportion.

Production Function

A mathematical equation that describes the maximum amount of output a firm can produce with a given set of inputs.

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