Activity Driver Analysis
Activity driver analysis identifies and assesses the factors involved in the costing of goods and services and is part of activity-based costing (ABC). Activity driver analysis compares the different activity drivers and associated costs in an attempt to reduce costs and increase efficiency and helps management trace the cost of certain activities to cost objects. Activity driver analysis factors include causal relationships between drivers and associated cost objects, whether certain drivers are easier to measure and whether certain activities are more costly. An ABC system recognizes the relationship between costs, overhead activities and manufactured products, and through this relationship, it assigns indirect costs to products less arbitrarily than traditional methods. ABC is an accounting method that identifies and assigns costs to overhead activities and then assigns those costs to products.
What is Activity Driver Analysis
Activity driver analysis identifies and assesses the factors involved in the costing of goods and services and is part of activity-based costing (ABC). ABC is an accounting method that identifies and assigns costs to overhead activities and then assigns those costs to products. Activity driver analysis compares the different activity drivers and associated costs in an attempt to reduce costs and increase efficiency and helps management trace the cost of certain activities to cost objects.
Breaking Down Activity Driver Analysis
An ABC system recognizes the relationship between costs, overhead activities and manufactured products, and through this relationship, it assigns indirect costs to products less arbitrarily than traditional methods. Activity driver analysis identifies the different factors that drive costs associated with an activity. Activity driver analysis factors include causal relationships between drivers and associated cost objects, whether certain drivers are easier to measure and whether certain activities are more costly. Driver analysis ultimately allows management to evaluate alternative activity drivers that might be more cost efficient in terms of machine hours, labor, materials, etc.
Related terms:
Activity-Based Costing (ABC) & Method
Activity-based costing (ABC) is a system that tallies the costs of overhead activities and assigns those costs to products. read more
Activity Cost Driver
An activity cost driver is a component of a business process. Activity cost drivers are used in activity-based costing, and they give a more accurate determination of the true cost of business activity by considering the indirect expenses. read more
Activity Cost Pool
An activity cost pool is an aggregate of all the costs associated with performing a particular business task, such as making a particular product. read more
Applied Overhead
Applied overhead is a fixed charge assigned to a specific production job or department within a business. read more
Business Valuation , Methods, & Examples
Business valuation is the process of estimating the value of a business or company. read more
Cost Accounting
Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing its variable and fixed costs. read more
Full Costing
Full costing is a managerial accounting method that describes when all fixed and variable costs are used to compute the total cost per unit. read more
Managerial Accounting
Managerial accounting is the practice of analyzing and communicating financial data to managers, who use the information to make business decisions. read more