In cost accounting, if you cannot name the cost driver, you do not truly understand the cost. Identify the right drivers, and you gain control over pricing, profitability, and operational efficiency.
| Cost Pool | Amount | Cost Driver | Driver Quantity | Rate | | --- | --- | --- | --- | --- | | Machine setup | $200k | Number of setups | 200 setups | $1,000/setup | | Quality control | $150k | Inspection hours | 3,000 hours | $50/hour | | Materials handling | $150k | Number of material moves | 500 moves | $300/move |
A is the unit of an activity that causes a change in the cost of that activity. It is a measurable factor (e.g., machine hours, labor hours, number of orders) that has a direct cause-and-effect relationship with total costs.
In cost accounting, every product, service, or business activity incurs costs. But what causes those costs to change? The answer is the cost driver .