Role of cost drives

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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. To illustrate, consider the example activity of "Determine Time Phased Material Requirements." For this example, you would need to recalculate those requirements whenever the production schedule changes. Thus, "Number of Schedule Changes" would be the cost driver of "Determine Time Phased Material Requirements." As this example implies, there must be a singular cost driver for each activity, or the activity needs to be further decomposed.

When choosing cost drivers, make sure they are relevant and easy ...