![]() The opposite is true if production decreased. ![]() Increased levels of production would require more paint, more parts, and more workforce labor time to assemble. If this number changed, the cost of production would also change. Each department from painting to assembly has a set amount of cars that must be completed each day. Everyday thousands of cars are ordered into the production line by management. ExampleĪn example of an activity cost driver in a manufacturing plant is the number of orders that must be produced. The cost driver can be anything in the pool that causes the cost of the activities to increase or decrease. What Does Activity Cost Driver Mean?Īctivity cost drivers are associated with the managerial accounting concept of activity based costing where job activities are divided in to cost pools based on their cost driver in an effort to properly allocate indirect costs to products based on the amount of activities required to produce them. In other words, it’s a factor associated with a production process or activity that can cause volatility in the cost of production or activity time. ![]() Definition: An activity cost driver, also called a casual factor, is an element that causes the cost of an activity to increase or decrease.
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