Activity Driver Analysis

What is Activity Driver Analysis

Activity driver analysis distinguishes and surveys the factors engaged with the costing of goods and services and is part of activity-based costing (ABC). ABC is an accounting method that distinguishes and doles out costs to overhead activities and afterward allocates those costs to products. Activity driver analysis compares the different activity drivers and associated costs trying to reduce costs and increase proficiency and assists management with following the cost of certain activities to cost objects.

Breaking Down Activity Driver Analysis

An ABC system perceives the relationship between costs, overhead activities and manufactured products, and through this relationship, it appoints indirect costs to products less for arbitrary reasons than traditional methods. Activity driver analysis distinguishes the various factors that drive costs associated with an activity. Activity driver analysis factors incorporate causal relationships among drivers and associated cost objects, whether certain drivers are simpler to measure and whether certain activities are more costly. Driver analysis at last permits management to assess alternative activity drivers that may be more cost efficient in terms of machine hours, labor, materials, and so on.