Question

In 200 words or more, What is a cost driver, how is it calculated and what are some examples? Original work please

Answer 1

Answer :

A cost driver is an activity that is the root cause of why a cost occurs.They are used to allocate variable and indirect costs to productionactivities or output. Include both indirect costs and direct costs to compute the full cost of production. Because indirect costs, such as variable overhead, are not directly traceable to production activities, you must allocate them according to a cost driver rate to apply these costs to production activities. Based on the activity of the cost driver, the cost driver rate is the rate indirect costs applied to production activities.

An activity can have more than one cost driver attached to it. For example, a production activity may have the following associated cost-drivers: a machine, machine operator(s), floor space occupied, power consumed, and the quantityof waste and/or rejected output.

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