Question

What is a cost driver? Give one example.

   What is a cost driver? Give one example.

Horngren’s Cost Accounting

Horngren’s Cost Accounting

Srikant M. Datar,… 16th Edition

Chapter 2, Problem 6

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Solved by Expert Ameer Said

10/27/2021

Step 1

A cost driver is a variable, activity, or event that causally affects the total costs over a given time span. It is a factor that can cause a change in the cost of an activity. Show more…

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Key Concepts

Cost Driver

A cost driver is any factor or activity that causes a change in the cost of an operation. It represents a measurable element that directly influences the amount of overhead or variable costs incurred by an organization. By identifying cost drivers, companies can more accurately allocate expenses to products or services and make informed managerial decisions.

Example - Machine Hours

In many manufacturing settings, machine hours serve as a common cost driver. This is because the usage of machinery typically correlates with costs such as maintenance, energy consumption, and depreciation. As the number of machine hours increases, the associated costs tend to rise, making it a practical indicator for cost management and allocation.

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