In cost management, a cost driver is defined as?

In cost management, a cost driver is defined as?

• A. A factor that drives costs to be incurred
• B. A factor that drives revenue growth
• C. A measure of asset depreciation
• D. A criterion for selecting vendors

Answer: (A)

In cost management, a cost driver is a factor that causes costs to be incurred. It captures the cause-and-effect relationship between activity levels and costs, so as the activity related to the driver increases, the associated costs rise. This idea underpins approaches like activity-based costing, where costs are assigned based on how much of the driving activity each product or service uses. Examples include machine hours, labor hours, the number of setups, or the number of purchase orders—the more of these activities you perform, the higher the costs. This concept is not about generating revenue, measuring asset depreciation, or selecting vendors, which are separate ideas.

In cost management, a cost driver is a factor that causes costs to be incurred. It captures the cause-and-effect relationship between activity levels and costs, so as the activity related to the driver increases, the associated costs rise. This idea underpins approaches like activity-based costing, where costs are assigned based on how much of the driving activity each product or service uses. Examples include machine hours, labor hours, the number of setups, or the number of purchase orders—the more of these activities you perform, the higher the costs. This concept is not about generating revenue, measuring asset depreciation, or selecting vendors, which are separate ideas.