quiestion 14 - wages fuel depreciation of the truck...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
What is cost driver? Cost driver is a cost accounting term. A business engages in many different activities. The cost driver for an activity is the factor that influences the amount of the resources that will be consumed by a particular activity. A cost driver is designed to allocate the activity cost pool (or related costs) to the cost objects. 1. The activity is the work that is done. 2. The resource is what the activity uses to do the work, i.e., people, equipment, services. Resources cost money. 3. The cost of the activity depends on the quantity of resources used to accomplish the activity. 4) The cost object is whatever it is you wish to cost. It could be a product, service, process, job or customer. Example: One part of the Ace Trucking's business operation involves making deliveries by truck. The activity is delivering goods. The costs of this activity include the truck drivers’
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: wages, fuel, depreciation of the truck, insurance, etc. The quantities of the resources that will be consumed by this activity are influenced by the number of deliveries made per year. Hence the cost driver could be the number of deliveries. A cost driver is the reason why the cost is incurred in other words, the cost is incurred in producing the driver. What are the limitations of activity based costing? There are several limitations to ABC. Firstly it is expense to implement and maintain, both in time and money . It still faces issue allocating some overheads to activities, for example supervisor salaries. Management and employees can be resistant to the data it provides as it can make their performance look poor. They may even provide poor quality source data if they feel threatened....
View Full Document

This note was uploaded on 02/15/2012 for the course ACCT 2402 taught by Professor Lewis during the Spring '10 term at Lone Star College System.

Ask a homework question - tutors are online