What is the cost driver?

Cost drivers refer to those important activities or events that determine the occurrence of costs, which can be an event, an activity or an operation. Simply understood as the cost driver is the factor that causes the cost change in production. As long as it can cause cost changes, it is the cost driver.

What does the cost driver mean?

Cost drivers refer to those important activities or events that determine the occurrence of costs, which can be an event, an activity or an operation. Cost drivers do not need to be quantified, but they have an important influence on the choice of activity drivers and resource drivers. Simply understood as the cost driver is the factor that causes the cost change in production. As long as it can cause cost changes, it is the cost driver. Generally speaking, cost drivers dominate cost behavior and determine the generation of costs, which can be used as a standard for allocating costs.

What are the types of activity-based cost drivers?

Activity-based cost driver refers to the unit of measurement of an activity output, such as product type, direct labor hours, machine preparation time, etc. Cost drivers can be divided into resource drivers and activity drivers in activity-based costing, and execution drivers, quantity drivers and intensity drivers in activity-based costing. Among them, resource driver refers to the standard of allocating resource cost to operation center, which reflects the consumption of resources by operation center.

1. Execution motivation: If an operation is repeatedly executed, the difference in resource cost consumed by each operation is very small, then the execution times of the operation can be used as the cost driver. Common operations with execution motivation include order processing.

2. Quantity driver: when an operation is executed many times, the consumption of resource expenses shows obvious variation, but if there is an approximate positive proportion relationship between the consumption of resource expenses and the operation time or other quantitative measures, the cost driver at this time is called quantity driver;

3. Intensity motivation: some products, services or customers need a special job, and the consumption of resources in the process of job execution does not meet the conditions of execution motivation or quantity motivation, so it is necessary to track and record the job separately and directly attribute the job cost to the object of cost calculation. This is called intensity driver, because it directly belongs to activity-based cost, so it is not necessary to calculate the cost driver rate.

What factors should be considered in the choice of cost drivers?

1. Implementation cost: cost driver data needs to be collected for each allocation target in one allocation; If data cannot be collected, data cannot be distributed. When determining the cost driver, the cost of collecting the cost driver data must be considered to ensure that the relevant data can be easily obtained. If the cost of data collection is too high, activity-based costing may not be feasible.

2. Relevance: It is assumed that the cost of distribution source has a linear relationship with the number of cost drivers in the distribution process. In fact, there may be multiple cost drivers, and the number of cost drivers has a linear relationship with the total cost of distribution sources. The best cost driver is the most suitable cost driver, which can ensure the accuracy of cost information.

3. Behavior orientation: Different cost drivers have different distribution results, and different cost distribution results and management decisions based on the distribution results will have a guiding effect on the behavior of organizations and employees.

How to calculate the cost driver rate?

The cost driver rate refers to the amount of indirect expenses caused by each unit cost driver, and the specific calculation formula is: cost driver rate = cost library expenses/total cost library operation drivers. Calculate the cost driver rate and allocate the cost according to the number of cost drivers consumed by each product in each cost base.