- Cost driver
A cost driver is the unit of an activity that causes the change of an activity cost.
The Activity Based Costing (ABC) approach relates indirect cost to the activities that drive them to be incurred.
In traditional costing the cost driver to allocate indirect cost to cost objects was volume of output. With the change in business structures, technology and thereby cost structures it was found that the volume of output was not the only cost driver. Some examples of indirect costs and their drivers are: indirect costs for maintenance, with the possible driver of this cost being the number of machine hours; or, the indirect cost of handling raw-material cost, which may be driven by the number of orders received; or, inspection costs that are driven by the number of inspections or the hours of inspection or production runs.
Generally, the cost driver for short term indirect variable costs may be the volume of output/activity; but for long term indirect variable costs, the cost drivers will not be related to volume of output/activity.
John Shank and Vijay Govindarajan list cost drivers into two categories: Structural cost drivers that are derived from the business strategic choices about its underlying economic structure such as scale and scope of operations, complexity of products, use of technology, etc., and Executional cost drivers that are derived from the execution of the business activities such as capacity utilization, plant layout, work-force involvement, etc.
To carry out a value chain analysis, ABC is a necessary tool. To carry out ABC, it is necessary that cost drivers are established for different cost pools.
"Cost drivers are the structural determinants of the cost of an activity, reflecting any linkages or interrelationships that affect it" (M. Porter), 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.
- Strategic Cost Management: The New Tool for Competitive Advantage by Shank and Govindarajan
- “Cost Accounting: a managerial emphasis”- 12a Edição (2005) by Charles T. Horngren, George Foster e Srikant M. Datar
- "Competitive Advantage", by Michael Porter.
Wikimedia Foundation. 2010.
Look at other dictionaries:
Cost Driver — Ein Cost Driver (deutsch Kostentreiber) ist eine im Zuge der Prozesskostenrechnung angewandte Bezugsgröße, mit deren Hilfe ein Teil der Gemeinkosten in einem Unternehmen über festgelegte Prozesse verursachungsgerecht auf die Kostenträger verteilt … Deutsch Wikipedia
cost driver — In a system of activity based costing, any factor such as number of units, number of transactions, or duration of transactions that drives the costs arising from a particular activity. When such factors can be clearly identified and measured,… … Accounting dictionary
cost driver — In a system of activity based costing, any factor such as number of units, number of transactions, or duration of transactions that drives the costs arising from a particular activity When such factors can be clearly identified and measured, they … Big dictionary of business and management
cost driver — An activity or factor with a *quantifiable relation to costs incurred in the achievement of an organization’s objectives. For example, the number of hours for which a production machine operates may be related to production costs in a… … Auditor's dictionary
cost driver — / kɒst ˌdraɪvə/ noun a factor that determines how much it costs to carry out a particular task or project, e.g. the amount of resources needed for it, or the activities involved in completing it … Marketing dictionary in english
Cost Driver Accounting — ⇡ Prozesskostenrechnung … Lexikon der Economics
Activity Cost Driver — A factor that influences or contributes to the expense of certain business operations. In activity based costing (ABC), an activity cost driver is something that drives the cost of a particular activity. A factory, for example, may have running… … Investment dictionary
Носитель затрат (COST DRIVER) — 1. Показатель деятельности, такой как, например, человеко часы, машино часы, использованное компьютерное время, часы полетов, километры пробега или контракты, являющийся причинным фактором отнесения затрат на объект. См. База распределения… … Словарь терминов по управленческому учету
Driver — may refer to: Contents 1 Places 2 Surnames of people 2.1 Fiction 3 Occupation and activity 3.1 … Wikipedia
Cost reduction — is the process used by companies to reduce their costs and increase their profits. Depending on a company’s services or Product, the strategies can vary. However, it is important to remember that every decision in the product development process… … Wikipedia