Cost driver investopedia

An activity cost driver is a component of a business process. Activity cost drivers are used in activity-based costing, and they give a more accurate determination of the true cost of business. A driver is a factor that has a material effect on the activity of another entity. In terms of economics or the stock market, it affects the earnings of a company or even the entire economy as a. The cost driver rate , which is the cost pool total divided by cost driver , is used to calculate the amount of overhead and indirect costs related to a particular activity. A factor that can causes a change in the cost of an activity.

Costs must thus be estimated based on an overhead rate for each cost driver or activity. It is important to include indirect costs that are based on this overhead rate in order to price a product. Der Cost Driver soll die in der traditionellen Kostenrechnung verwendeten Gemeinkostenzuschlagssätze weitestgehend ersetzen. Damit werden die den Endprodukten belasteten Kosten zutreffender dargestellt, so dass unternehmerischen Fehlentscheidungen (z.

B. beim Outsourcing oder der Preis- und Konditionenpolitik ) besser entgegengewirkt werden kann. 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 overhea which can be used to minimize overhead costs.

In fact, a department may have multiple cost centers within it. A cost center may be any defined group in which management finds benefit in. An expense is the cost of operations that a company incurs to generate revenue.

Businesses can write off tax-deductible expenses on their income tax returns, provided that they meet the IRS. Revenue and cost drivers are the individual elements that make up those gross numbers. They are different in each business model. Sometimes managers will develop a strategic plan and then figure out the related revenue and cost drivers. In this lesson, we will learn about cost drivers.

We will define the term, look at examples, and learn the steps a company might take when analyzing a cost driver. Cost drivers are the structural determinants of the cost of an activity, reflecting any linkages or interrelationships that affect it. Therefore we could assume that the cost drivers determine the cost behavior within the activities, reflecting the links that these have with other activities and relationships that affect them. A cost object is any item for which costs are being separately measured. It is a key concept used in managing the costs of a business.

Here are some types of cost objects: Output. The cost breakdown analysis is even more effective when repeated constantly, so that changes in the respective shares in total costs of the various cost drivers can be tracked down. Over a five-year perio the share of expenses for tires might have risen from to , accompanied by a decrease of expenses for personnel from to , which. A cost centre is a department within a business to which costs can be allocated.

The term includes departments which do not produce directly but incur costs to the business, when the manager and employees of the cost centre are not accountable for the profitability and investment decisions of the business but they are responsible for some of its costs. The cost structure of the firm is the ratio of fixed costs to variable costs. Use cost structure in a sentence “ I had a nice cost structure plan laid out to determine how things would be going and how we would implement our plan. For example, a product is the cost object for direct materials, direct labor and manufacturing overhead.

The factory maintenance department is a cost object for the cost of the maintenance employees and the maintenance supplies. As a result indirect costs and expenses are often allocated to the department, product, etc. For example, a manufacturing department that molds plastic has some costs that are directly traceable to it, such as the wages.

Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels.