Cost driver is the element of a production process that incurs the cost based on a specific activity. The concept of cost driver is given by the activity-based costing system in which the costs are absorbed based on the activity that used the cost. Some costs are not traceable directly from the cost of a product for example the electricity and maintenance costs.
To allocate more accurately the costs are absorbed on the basis of each activity used by one unit of production. For example, electricity is used for machines that are used for cutting of materials. The machine performs 700 cuttings in one hour. It means that a cost driver is the number of cuttings in one hour. If one product takes 10 cuttings the cost will be allocated based on the number of cuttings used by one unit.
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Sara’s Salsa Company produces its condiments in two types: Extra Fine
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After reading an article about activity-based costing in a trade
After reading an article about activity-based costing in a trade
After reviewing the new activity-based costing system that Janis McGee
