Using preliminary stage cost drivers, explain how individual items of costs will be traced to activity.

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Using preliminary stage cost drivers, individual items of costs can be traced to their associated activities. Cost drivers are factors that cause a change in the cost of an activity and they are typically used to assign overhead expenses to activities or products. The most common types of cost drivers include direct labor hours, machine hours, number of setups and number of inspections.

For example, if a company is looking to trace the costs associated with producing a certain item, it may use direct labor hours as its cost driver as this will determine how much time is spent on each piece produced. Similarly, machine hours can be used as a cost driver for any production processes that require the use of machines such as machining or injection molding. Number of setups could also be used when tracing setup costs associated with certain operations such as tooling or equipment calibration while number of inspections could be used when tracking inspection-related expenses.

By using these different types of preliminary stage cost drivers, companies can more accurately trace individual items of costs back to their respective activities thus providing better visibility into how resources are being utilized within the organization. This information is invaluable in helping organizations make informed decisions regarding resource allocations and ultimately improve profitability over time by reducing waste and inefficiencies throughout their production process.