These activities—order taking, fulfillment, and quality inspections—are potential cost drivers associated with production, and they each drive the overhead at varying rates. Identifying Cost Drivers. Cost drivers vary widely among companies.

What are some ABC cost drivers?

Requirements for Activity-Based Costing (ABC) A cost driver, also known as an activity driver, is used to refer to an allocation base. Examples of cost drivers include machine setups, maintenance requests, consumed power, purchase orders, quality inspections, or production orders.

How does an accountant determine a cost driver?

To begin the determination of appropriate cost drivers, an accountant analyzes the activities in the product production process that contribute to the cost of that product.

How to identify cost drivers for your business?

Answers may vary but should be similar to the following: A. number of orders; B. number of customers; C. number of meals; D. number of material requisitions received. (Figure) Identify appropriate cost drivers for these cost pools: (Figure) Match the activity with the most appropriate cost driver.

How to identify cost drivers for a cost pool?

(Figure) For each cost pool, identify an appropriate cost driver. Answers may vary but should be similar to the following: A. number of orders; B. number of customers; C. number of meals; D. number of material requisitions received. (Figure) Identify appropriate cost drivers for these cost pools:

Why are cost drivers important in the production process?

In today’s production environment, there are many activities within the production process that can contribute to the cost of the product, but determining the cost drivers may be complicated because some of those activities may change over time. Additionally, the appropriate level of assigning cost drivers needs to be determined.