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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Which statement about the cost driver in Activity Based Costing is correct?

A cost driver is the factor that causes the cost of an activity to change and is used as the basis to assign the activity's cost pool to products. It is not the pool itself or the cost object; examples are set-ups and inspections.

  1. AIt is the factor that causes the cost of an activity to change and is used to assign activity cost to productsCorrect
  2. BIt is the total cost accumulated in an activity cost pool
  3. CIt is the final product to which costs are charged
  4. DIt is any cost that is unaffected by the level of activity

Explanation

A cost driver is the causal factor that explains why an activity's cost varies, such as number of set-ups or inspections. It is the basis for assigning pooled cost to cost objects. The accumulated cost is the cost pool, and the product is the cost object.

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