Costs from general accounts (like electricity or salaries) are assigned to specific activities using resource drivers .
| Activity | Cost Pool | Activity Cost Driver | Total Driver Quantity | Cost per Driver | Product X Usage | Product Y Usage | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Machine Setup | $200,000 | Number of setups | 200 setups (100 for X, 100 for Y) | $1,000 per setup | 100 setups = $100,000 | 100 setups = $100,000 | | Purchasing | $100,000 | Number of POs | 500 POs (100 for X, 400 for Y) | $200 per PO | 100 POs = $20,000 | 400 POs = $80,000 | | Quality Control | $150,000 | Inspection hours | 1,500 hours (500 for X, 1000 for Y) | $100 per hour | 500 hrs = $50,000 | 1,000 hrs = $100,000 | | | | | | | $170,000 | $280,000 | | Overhead Per Unit | | | | | $170,000 / 10,000 units = $17 | $280,000 / 100 units = $2,800 | activity cost driver
An Activity Cost Driver is more than just an accounting metric; it is a tool for strategic decision-making. By moving beyond simple volume-based allocation and identifying the specific actions that incur costs, organizations can gain a clearer picture of profitability, streamline their operations, and make more informed financial decisions. It transforms accounting data into actionable business intelligence. Costs from general accounts (like electricity or salaries)