Cost Driver • 1. COST DRIVERSCOST DRIVERS && COST BEHAVIOURCOST BEHAVIOUR Dr. Rana SinghDr.

Four members. The simulation model generates detailed Bills of Activity for each part type and includes specific information about the cost drivers and cost pools. The enhanced model output can be used for cost estimation and analysis, manufacturing cell design, part scheduling and other manufacturing decision processes. In activity-based costing (ABC), an activity cost driver drives the costs of labor. The machine setups required for production or the number of inspections.

Rana Singh www.ranasingh.orgwww.ranasingh.org • COST DRIVER - DEFINITIONCOST DRIVER - DEFINITION  An activity which generates costAn activity which generates cost  A factor such as the level of activity or volumeA factor such as the level of activity or volume that causally affects cost.that causally affects cost.  Existence of a cause-and-effect relationshipExistence of a cause-and-effect relationship between a change in the level of activity orbetween a change in the level of activity or volume and change in the level of total costs ofvolume and change in the level of total costs of that cost object.that cost object.

 Thus cost drivers signify factors, forces orThus cost drivers signify factors, forces or events that determine the costs of activitiesevents that determine the costs of activities • COST DRIVER - IDENTIFIEDCOST DRIVER - IDENTIFIED  Direct costs do not need cost driversDirect costs do not need cost drivers  They are themselves cost drivers since they canThey are themselves cost drivers since they can be traced directly to a product.be traced directly to a product.  All other factory or manufacturing costs needAll other factory or manufacturing costs need cost drivers.cost drivers. • COST DRIVERS – WHY?COST DRIVERS – WHY?

 They are the links between a pool of costs in anThey are the links between a pool of costs in an activity centre and the productactivity centre and the product  Therefore in order to trace overhead costs toTherefore in order to trace overhead costs to products, appropriate cost drivers should beproducts, appropriate cost drivers should be identified.identified. • COST DRIVER - TYPESCOST DRIVER - TYPES There are two categories of cost driver:There are two categories of cost driver:  Resource Cost Driver: A measure of theResource Cost Driver: A measure of the quantity of resources consumed by an activity.quantity of resources consumed by an activity.

Used to assign the cost of a resource to anUsed to assign the cost of a resource to an activity or cost pool.activity or cost pool.  Activity Cost Driver: Measure of the frequencyActivity Cost Driver: Measure of the frequency and intensity of demand, placed on activities byand intensity of demand, placed on activities by cost Xsplit License Keygen there. objects. Used to assign activity costs to costcost objects. Used to assign activity costs to cost objects.objects.