Suggested Cost Drivers for Activities
(For use in Activity-Based Costing)
| Activity | Appropriate Cost Driver |
|---|---|
| Materials Order Costs | Number of purchase orders |
| Maintenance of Machinery | Machine hours used / Maintenance hours |
| Storing and Handling Components | Number of components / Volume of inventory |
| Quality Inspection Costs | Number of inspections / Inspection hours |
| Production Run Set-up Costs | Number of setups or production runs |
Using the right cost drivers improves cost accuracy and supports strategic decision-making. ABC helps assign overheads more fairly to products or services based on actual activities.
