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Definition of Driver

Driver Image 1

Driver

A factor that has a direct impact on the incurring of a cost. For example, adding
an employee results in new costs to purchase office equipment for that person;
therefore, additions to headcount are cost driver for office expenses.



Related Terms:

activity driver

a measure of the demands on activities and,
thus, the resources consumed by products and services;
often indicates an activity’s output


Cost driver

The most significant cause of the cost of an activity, a measure of the demand for an activity
by each product/service enabling the cost of activities to be assigned from cost pools to products/services.


cost driver

a factor that has a direct cause-effect relationship
to a cost; an activity creating a cost


Cost driver

A factor that directly impacts the incidence of a cost, and which is generally
based on varying levels of activity.


cost driver analysis

the process of investigating, quantifying,
and explaining the relationships of cost drivers and
their related costs



Activity-based budgeting

A method of budgeting that develops budgets based on expected activities and cost drivers – see also activity-based costing.


activity-based budgeting (ABB)

planning approach applying activity drivers to estimate the levels and costs of activities necessary to provide the budgeted quantity and
quality of production


Driver Image 2

Activity-based costing

A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.


activity based costing (ABC)

A relatively new method advocated for the
allocation of indirect costs. The key idea is to classify indirect costs,
many of which are fixed in amount for a period of time, into separate
activities and to develop a measure for each activity called a cost driver.
The products or other functions in the business that benefit from the
activity are allocated shares of the total indirect cost for the period based
on their usage as measured by the cost driver.


activity-based costing (ABC)

a process using multiple cost drivers to predict and allocate costs to products and services;
an accounting system collecting financial and operational
data on the basis of the underlying nature and extent
of business activities; an accounting information and
costing system that identifies the various activities performed
in an organization, collects costs on the basis of
the underlying nature and extent of those activities, and
assigns costs to products and services based on consumption
of those activities by the products and services


Activity-based costing (ABC)

A cost allocation system that compiles costs and assigns
them to activities based on relevant activity drivers. The cost of these activities can
then be charged to products or customers to arrive at a much more relevant allocation
of costs than was previously the case.


allocate

assign based on the use of a cost driver, a cost predictor,
or an arbitrary method


cost pool

a collection of monetary amounts incurred either
for the same purpose, at the same organizational level, or
as a result of the occurrence of the same cost driver


Fixed cost

A cost that does not vary in the short run, irrespective of changes in any
cost drivers. For example, the rent on a building will not change until the lease
runs out or is re-negotiated, irrespective of the level of business activity within
that building.


standard quantity allowed

the quantity of input (in hours or some other cost driver measurement) required at standard for the output actually achieved for the period



 

 

 

 

 

 

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