| Characteristic | Explanation | |----------------|-------------| | | There is a direct cause-and-effect relationship between the driver and the cost. | | Measurable | The driver can be quantified reliably. | | Cost-effective | The benefit of using the driver exceeds the cost of measuring it. | | Behavioral | It encourages desirable behavior (e.g., reducing setups reduces cost). |
Cost drivers are categorized based on the level at which they impact production or service delivery. cost driver in activity based costing
| Type | Definition | Example | |------|------------|---------| | | Counts how many times an activity occurs (assumes each occurrence consumes similar resources). | Number of setups, number of orders | | Duration Driver | Measures the time required for an activity (more accurate when each occurrence takes different times). | Setup hours, inspection hours | | | Behavioral | It encourages desirable behavior (e
| Activity | Cost Pool | Possible Cost Driver | |----------|-----------|----------------------| | Machine setup | Setup labor, supplies | Number of setups | | Quality inspection | Inspection labor, test equipment | Number of inspections | | Purchasing | Purchase orders, vendor management | Number of purchase orders | | Material handling | Forklift, labor | Number of material moves | | Customer service | Support staff, phone costs | Number of customer calls | | Production scheduling | Planner salaries | Number of production runs | | Number of setups, number of orders |