Four key cost drivers

As you’ve learned, the most common bases for predetermined overhead are direct labor hours, direct labor dollars, or machine hours. Each of these costs is considered a cost driver because of the causal relationship between the base and the related costs: As the cost driver’s usage increases, the cost of overhead increases as well. (Figure) shows various costs and potential .  · Over the long run, the cost of one driver — Information — continues to drop while the cost of the other four drivers continues to rise. Companies that make best use of information to increase their internal efficiency, and increase their responsiveness to external supply chain partners will gain the most customers and be the most profitable.  · Examples of Cost Drivers Examples of cost drivers are direct labor hours worked, the number of customer contacts made, the number of engineering change orders issued, the number of machine hours used, and the Estimated Reading Time: 30 secs.

There are, quite frankly, hundreds of value drivers, some of which are industry-specific. For brevity, we will focus on ten universal factors we consider essential to increasing cash flows and reducing risk, thereby enhancing overall company value. 1. Capital Access. The smaller the company, the more limited its access to debt and equity capital. Examples of Cost Drivers Examples of cost drivers are direct labor hours worked, the number of customer contacts made, the number of engineering change orders issued, the number of machine hours used, and the number of product returns from customers. Types of Drivers in Cost Accounting. In a traditional system of accounting, the indirect costs or manufacturing overheads are allocated to the production cost based on a predetermined rate. In some accounting systems, cost drivers are almost irrelevant in determining the contribution. Number of set-ups; Number of machine hours; Number of processed orders.

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