Cost driver explanation

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The cost driver definition implicit driver option lets you use a table to define the driver quantities and driver targets using an implicit pointer to point to a particular table. Use this driver to specify specific subsets of costs such as transaction costs.  · What is a Cost Driver? A cost driver triggers a change in the cost of an activity. The concept is most commonly used to assign overhead costs to the number of produced units. It can also be used in activity-based costing analysis to determine the causes of overhead, which can be used to minimize overhead costs. A large number of cost drivers may be used within an activity-based costing Estimated Reading Time: 30 secs.

In accounting, the cost driver definition is a factor that incurs cost. Use cost drivers to allocate variable and indirect costs to production activities or output. Include both indirect costs and direct costs to compute the full cost of production. Because indirect costs, such as variable overhead, are not directly traceable to production activities, allocate them according to a cost driver rate to apply these costs to production activities. A cost driver is a unit that derives the expenses and sets a basis on which a particular cost is to be allocated between the different departments and on the basis of that driver’s activity completed in that particular period the cost is allocated. These are the structural determinants of the activities on which cost is being incurred and determine the behavior of the costs on an activity. A cost driver is a factor that creates or drives the cost of the activity. It is the root cause of why a particular cost occurred. Activities consume resources while customers, products, and channels of production consume activities. Understanding this is fundamental to the cost allocation concept using cost drivers.

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