which would be a cost driver for a facility-level activity? course hero

What are activity cost drivers?

Activity cost drivers include things such as labor hours, machine hours, and customer contacts. They are used in activity-based costing (ABC) – a segment of managerial accounting. Activity cost drivers are actions that cause costs to increase or decrease. Activity cost drivers are used in activity-based accounting (ABC).

What is the purpose of a cost driver?

They are only used as a tool to help management understand which activities are driving certain expenses and the true cost of producing particular products or services. Especially with larger and more complex businesses, cost drivers will always be an estimate.

How many cost drivers should a business use?

If a business is only concerned with following the minimum accounting requirements to allocate overhead to produced goods, then just a single cost driver should be used.

Do low value-added activities have priority over other activities?

Not affect customer value. Not have priority because low-value-added activities have little effect on a firm's performance. Have priority only when a firm is operating at a loss. Happen naturally if the firm is well-managed.

Why do low value added activities not have priority?

Not have priority because low-value-added activities have little effect on a firm's performance.

How are overhead costs traced?

Overhead costs are traced from resources to cost objects.

Is factory overhead volume based?

A.A large portion of factory overhead cost is not volume-based.

What is activity cost driver?

An activity cost driver refers to actions that cause variable costs. Variable Costs Variable costs are expenses that vary in proportion to the volume of goods or services that a business produces. In other words, they are costs that vary. to increase or decrease for a business. Therefore, identifying what product/service is causing particular costs ...

Why are activity cost drivers important?

Activity cost drivers are also important in projecting costs. For example, if management receives a sales order for a certain number of units, they can pinpoint exactly how much it is going to cost to fulfill that order.

Why are cost drivers used?

They are only used as a tool to help management understand which activities are driving certain expenses and the true cost of producing particular products or services. Especially with larger and more complex businesses, cost drivers will always be an estimate. Accountants.

Why is it important to allocate cost drivers appropriately?

Allocating cost drivers appropriately is important in accurately determining the cost of producing a good or service, as well as making financial projections.

Why is it important to look at activity cost drivers?

Looking at activity cost drivers can allow management to better understand a company’s expenses. By delineating the exact source of different expenses, companies can help to reduce or eliminate unnecessary expenses. Without proper allocation of the cost drivers, it can be meaningless to compare the costs of different products and services.

Can variable expense be more than one activity cost driver?

One variable expense can comprise more than a single activity cost driver. For example, machine hours and labor hours can be activity cost drivers in the manufacturing of a product. All variable expenses can be broken down and looked at by one or several activity cost drivers, which can also be influenced by several factors.