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The Activity Based Costing (ABC) approach relates indirect cost to the activities that drive them to be incurred. Activity Based Costing is based on the belief that activities cause costs and therefore a link should be established between activities and product. The cost drivers thus are the link between the activities and the cost of the product.
If certified cost or pricing data has been requested by the Government and submitted by an offeror, but an exception is later found to apply, the data should not be considered to be "certified". [1] The requirement for a certificate of cost or pricing data may also apply to sub-contractors at any tier in the supply chain. [2] [4]
The cost driver is a factor that creates or drives the cost of the activity. For example, the cost of the activity of bank tellers can be ascribed to each product by measuring how long each product's transactions (cost driver) take at the counter and then by measuring the number of each type of transaction.
The following examples include fictional numbers, lack complexity concerning the cost drivers and are merely used to display the method of cost breakdown analyses. Transportation and corrugated boxes are very illustrative examples as they allow a simple break down of the total cost into the single cost drivers.
Cost pools is an accounting term that refers to groups of accounts serving to express the cost of goods and service allocatable within a business or manufacturing organization. [1] The principle behind the pool is to correlate direct and indirect costs with a specified cost driver, so to find out the total sum of expenses related to the ...
A cost object is a term used primarily in cost accounting to describe something to which costs are assigned. [1] Common examples of cost objects are product lines, geographic territories, customers, departments or anything else for which management would like to quantify cost.