CMA Intermediate · Management Accounting · Activity Based Costing
Which of the following best describes a 'cost driver' in Activity Based Costing?
A cost driver is a factor that causes the cost of an activity to change, for example the number of setups or inspections. ABC divides each activity cost pool by its driver volume to get a rate, which then assigns cost to products according to their consumption of the activity.
- AA factor that causes the cost of an activity to changeCorrect
- BThe total overhead cost of a department
- CA method of allocating costs on direct labour hours only
- DThe cost of idle capacity in a production process
Explanation
A cost driver is the factor that causes the cost of an activity to change, such as number of setups or inspections. It is used to assign the activity cost pool to products. The other options describe a cost total, a traditional absorption base, or idle capacity.
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