Final answer:
The best cost driver is causally related to the costs, which ensures accurate allocation of costs for managing resources and making informed decisions in managerial accounting.
Step-by-step explanation:
The best cost driver is one that is causally related to the cost being allocated. In managerial accounting, a cost driver is any factor which causes a change in the cost of an activity. For instance, machine hours could be a cost driver for the costs of operating machinery.
The reason you want a cost driver to be causally related is to ensure that the costs allocated are fair and reflect the actual consumption or use of resources. Allocating costs based on irrelevant or arbitrary drivers can lead to inaccurate product or service costing, misleading profit measurements, and poor management decisions.
The best cost driver is one that is causally related to the cost being allocated. A cost driver is a factor that impacts the cost of producing a product or providing a service. For example, in a manufacturing company, the number of machine hours used can be a cost driver for allocating overhead costs.