Final answer:
Utilizing historical data supports the incorporation of nonoutput-based cost drivers into budgeting by predicting future expenses. These costs, often fixed such as rent and salaries, are combined with variable costs to calculate the average total cost for more accurate budgeting. This approach also allows insight into the value of various inputs and outputs of a firm's production process.
Step-by-step explanation:
To incorporate nonoutput-based cost drivers into budgeting, one can utilize historical data to establish the costs that do not directly correlate with the production output. Nonoutput-based cost drivers often include expenses such as rents, insurance, or salaries, which are typically fixed costs. These fixed costs, along with variable and marginal costs, contribute to the average total cost of production. By analyzing historical cost data, a business can predict future nonoutput-based expenses more accurately and create a budget that reflects both fixed and variable costs.
Understanding the nature of costs through the breakdown into fixed cost, marginal cost, average total cost, and average variable cost is not only imperative for budgeting but also offers critical insight into the firm's finances. This allows businesses to evaluate the value of inputs and outputs that are not easily quantifiable and to strategize accordingly, ensuring that productivity is measured in more ways than output per hour of work.
Moreover, considering factors such as the amount of labor and capital used to produce different types of outputs, like cars versus computer software, aids in the allocation of resources and budgeting for nonoutput-based costs. Each industry has unique cost drivers that must be understood and incorporated into a comprehensive budget to manage finances effectively.