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What does the term 'cost driver' refer to in activity-based costing?

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Question: What does the term \'cost driver\' refer to in activity-based costing?

Options:

  1. A factor that causes a change in cost
  2. A method of allocating fixed costs
  3. A type of variable cost
  4. A measure of production efficiency

Correct Answer: A factor that causes a change in cost

Solution: 

A cost driver is a factor that causes a change in the cost of an activity, used in activity-based costing to allocate costs accurately.

What does the term 'cost driver' refer to in activity-based costing?

Practice Questions

Q1
What does the term 'cost driver' refer to in activity-based costing?
  1. A factor that causes a change in cost
  2. A method of allocating fixed costs
  3. A type of variable cost
  4. A measure of production efficiency

Questions & Step-by-Step Solutions

What does the term 'cost driver' refer to in activity-based costing?
  • Step 1: Understand that costs are associated with different activities in a business.
  • Step 2: Learn that a 'cost driver' is something that causes these costs to change.
  • Step 3: Realize that in activity-based costing, we use cost drivers to figure out how much each activity costs.
  • Step 4: Know that by identifying cost drivers, businesses can allocate costs more accurately to products or services.
  • Cost Driver – A cost driver is a factor that causes a change in the cost of an activity, which is essential for accurately allocating costs in activity-based costing.
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