By on July 23, 2013 in See Also: Cost Driver In accounting, a cost driver is a factor that incurs cost. They are used to allocate and costs to activities or output. To compute the full cost of production, include indirect costs as well as direct costs.

Answer to What are some an examples of activity based costing cost pools and cost drivers in a restaurant?. A cost driver is the unit of an activity that causes the change in activity's cost. Cost driver is any. Service, cost drivers are.

Because indirect costs, such as variable, are not directly traceable to production activities, in order to apply these costs to activities they must be allocated according to a cost driver rate. Based on the activity of the, the cost driver rate is the rate at which indirect costs are applied to production activities. Download the free guide to easily manage the factors incurring costs in your company. Choosing Cost Drivers An indirect or variable cost may have several possible cost drivers. Traditional methods allocate indirect costs to production activities based on volume of output. Conversely, allocates indirect costs to particular production activities related to that cost.

English Speaking Grammar Book In Hindi Pdf. When deciding which driver to use in terms of allocating indirect cost, it is necessary to consider the cause-and-effect relation between the cost and the driver, and whether or not the cost driver activity is easily measurable. It is also necessary to consider the cost behavior of the relevant cost, which refers to the cost’s response to the activity of the driver. In addition, approximate the relationship between costs and cost drivers using regression analysis. Use these drivers at differing hierarchical levels.

For example, an indirect or variable cost may be relevant at the unit level, the batch level, the product level, the level, or the facility level. Once you determine the appropriate hierarchical level, choose a cost driver activity at that level in order to allocate the indirect or variable cost. A New History Of The Double Bass Paul Brun Pdf. Cost Driver Rates A cost driver rate is the amount of indirect or variable cost assigned to each unit of cost driver activity. For example, indirect may be applied to hours as $50 dollars per hour. In this case, for each hour of direct labor required for production, the company would then allocate $50 of indirect costs to the production activities or output. Cost Driver Examples For illustrative purposes, below are some examples of indirect or variable costs as well as relevant cost driver bases for these costs.

Cost Cost Driver Maintenance expenseMachine hours Fuel costsMiles traveled Electricity expenseHours of factory operation Material handling expenseTons of material handled Want to check if your unit economics are sound? Download your free guide.