Importance of Cost drivers

It is for the management to establish a clear link with the cost driver. A correct estimation may lead to a better understanding of cost behavior.
1. The proper understanding of cost driver may help the management to put better cost control activities in place.
2. It helps the management to understand the nature of various costs involved in production process.
3. The unnecessary expenditure may be eliminated by identifying the undesirable activities.
4. It reflects the result of change in techniques of production.
5. It enables better decision making by the management.