Activities cost drivers

 · A cost driver triggers a change in the cost of an activity. The concept is most commonly used to assign overhead costs to the number of produced units. It can also be used in activity-based costing analysis to determine the causes of overhead, which can be used to minimize overhead www.doorway.ruted Reading Time: 30 secs.  · Your cost drivers are all the activities that you do that cost you money to make your product. Your cost pools are your cost drivers divided into groups of related costs. In activity based costing method, to identify cost drivers is very necessary for unit cost and total cost. We know that activity-based costing is based on the concept that products consume activities and activities consume resources. From activity pools, we can find cost drivers. Suppose, a company wants to produce several products.

A cost driver triggers a change in the cost of an activity. The concept is most commonly used to assign overhead costs to the number of produced units. It can also be used in activity-based costing analysis to determine the causes of overhead, which can be used to minimize overhead costs. Decisions that affect organizational cost drivers are made within the context of previous decisions affecting structural cost drivers. The types of activities and the costs of activities performed to satisfy customer needs are influenced by an organization’s size, its location, the scope of its operations, and the technologies used. A cost driver is a unit that derives the expenses and sets a basis on which a particular cost is to be allocated between the different departments and on the basis of that driver’s activity completed in that particular period the cost is allocated. These are the structural determinants of the activities on which cost is being incurred and determine the behavior of the costs on an activity.

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