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Definition of

cost driver


something that affects cost of activity a factor that determines the cost of an activity. Cost drivers are analyzed as part of activity based costing and can be used in continuous improvement programs. They are usually assessed together as multiple drivers rather than singly. There are two main types of cost driver: the first is a resource driver, which refers to the contribution of the quantity of resources used to the cost of an activity; the second is an activity driver, which refers to the costs incurred by the activities required to complete a specific task or project.

Recommended Further Reading (Term count)
  • Profitability Analysis Using Activity-Based Costing
    by Priscilla Wisner
    Cost allocation in firms can provide misleading information about the profitability of products, product lines, customers, and markets. Traditional cost allocation practices allocate all manufacturing overhead costs using a single driver such as direct labor hours, direct labor dollars, or machine hours. Sales-related costs are typically ignored. While technically accurate, in most complex organizations a single overhead cost driver is not...
  • Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance
    Robert S. Kaplan and Robin Cooper (1997)
    Two highly respected academics present a resource for understanding and implementing activity-based cost management, and show how to improve company profits and performance. Provides a detailed blueprint to enable managers to make better decisions and to promote organizational learning. Explains why activity-based costing has great benefits, not only for accounting but also management and business strategy.
  • To Hedge or Not to Hedge
    by Steve Robinson
    Business has become increasingly international, and companies cannot ignore the impact of currency changes on cash flows, profitability, and their asset and liability position. No company is wholly immune—the cash received from exporting is affected by the relationship between the currency used by the customer to pay and the currency in which the cost of providing the product or service is denominated.Many commodity prices have been volatile,...
  • Activity-Based Costing
    Activity-based costing (ABC) attempts to create the big picture—crystal-clear, full, and accurate—by painting assorted little pictures.ABC identifies the relationship between a business activity and all the resources needed to conduct it by assigning costs to each of those resources, thus presenting the true total expense of the entire activity. ABC can account for so-called “soft,” or indirect, operating costs, and thus produce a more...

Definitions of ’cost driver’ and meaning of ’cost driver’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’cost driver’ and other financial terms with our online QFINANCE Financial Dictionary.

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