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CA Intermediate · Cost and Management Accounting · Activity Based Costing

In Activity Based Costing, the measure chosen to assign the cost of an activity cost pool to products, based on how much of the activity each product consumes, is called a:

The measure used to assign activity cost to products is the cost driver. It reflects the consumption of the activity by each product, so costs are traced by cause and effect. A cost object is the thing costed, not the basis of assignment.

  1. ACost driverCorrect
  2. BCost centre
  3. CCost unit
  4. DCost object

Explanation

A cost driver is the factor that causes the cost of an activity to change and is used to assign activity cost to products. A cost object is the item being costed, a cost unit is a unit of output, and a cost centre is a location or function, so none of them serves as the assignment basis.

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