Explain what a cost driver is and give an example

Explain the term cost driver, using an example of fuel cost for delivery vehicle. With the use of an example of HOT BREAD SHOP, compare and contrast the cost drivers used in traditional management accounting systems when costs are classified as fixed or variable and contemporary management accounting system such as, in activity based costing. Cost Driver Rates. A cost driver rate is the amount of indirect or variable cost assigned to each unit of cost driver activity. For example, you may apply indirect overhead to direct labor hours as $50 dollars per hour. In this case, for each hour of direct labor required for production, the company would then allocate $50 of indirect overhead costs to the .  · If a business is only concerned with following the minimum accounting requirements to allocate overhead to produced goods, then just a single cost driver should be used. Examples of Cost Drivers Examples of cost drivers are direct labor hours worked, the number of customer contacts made, the number of engineering change orders issued, Estimated Reading Time: 30 secs.

If a business is only concerned with following the minimum accounting requirements to allocate overhead to produced goods, then just a single cost driver should be used. Examples of Cost Drivers Examples of cost drivers are direct labor hours worked, the number of customer contacts made, the number of engineering change orders issued, the number of machine hours used, and the number of product returns from customers. A cost driver is the direct cause of a cost, and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity. In such a scenario, the units of electricity consumed. Cost Driver Rates. A cost driver rate is the amount of indirect or variable cost assigned to each unit of cost driver activity. For example, you may apply indirect overhead to direct labor hours as $50 dollars per hour. In this case, for each hour of direct labor required for production, the company would then allocate $50 of indirect overhead costs to the production activities or output. Cost Driver Examples.

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