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What does the term 'cost driver' refer to in activity-based costing?
What does the term 'cost driver' refer to in activity-based costing?
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What does the term 'cost driver' refer to in activity-based costing?
A factor that causes a change in cost
A method of allocating fixed costs
A type of variable cost
A measure of production efficiency
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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.
Questions & Step-by-step Solutions
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Q: What does the term 'cost driver' refer to in activity-based costing?
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.
Steps: 4
Show Steps
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.
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