Cost Classifications, Drivers & Behaviours

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Various cost classifications Compare and contrast various cost classifications, behaviors, and drivers. You may want to consider what types of financial and non financial performance metrics you will be recommending to be sure we are collecting appropriate costs.

Cost drivers are the factors that cause you to incur expenses. Cost drivers are triggers, or those things, which cause an activity to be performed or an expense to be incurred. Cost drivers might include, but not be limited to, inside/outside sales, order processing, credit, delivery, telephone expenses, training, application expertise, after-hour service, design time, machining etc.
In this case one has to formulate the budget and then identify the constraints and risks. This can be done by use of Activity-Based Costing (ABC). It is accounting technique that allows an organization to determine the actual cost associated with each product and service produced by the organization without regard to the organizational structure. Activity- based costing can be used to identify discrete activities as well as identifying the primary output measure for each activity. With using activity-based costing there are value added-activities and non- value added-activities. Value added-activities are activities which customers are willing to pay for or show that after the process there will be a profit. Non- value activities are activities which customers are not willing to pay for or activities which do not show future profit. The activities must be analyzed in order to decide what will be a productive measure. When using activity-based costing an organization can measure costs against individual activities. With seeing what the results are, the company can figure out if there can be an adjustment made to create a value added-activity. If the activity turns out to be a non-value added-activity the organization may decide to delete the activity all together.
Activity Based Management helps one analyze, and monitor activity-based management information. Activity-based management also helps one go beyond traditional cost allocation to explain the types of costs-based on activities, materials, resources, and product or service components.(COA). With using this type of management you can have a better idea of ...