![]() Expenses incurred relating to the layout or structure of a building or warehouse may utilize a cost driver of square footage to allocate expenses. The most common cost driver has historically been direct labor hours. A cost driver assists with allocation expenses in a systematic manner that theoretically results in more accurate calculations of the true costs of a producing specific products.Įxamples of Cost Drivers. There may be multiple cost drivers responsible for the occurrence of a single expense. It must be applicable and relevant to the event that is incurring a cost. Cost drivers are essential in ABC, a branch of managerial accounting that allows managers to determine the costs to perform an activity at various activity levels. In activity- based costing (ABC), an activity cost driver drives the costs of labor, maintenance or other variable expenses. What is an 'Activity Cost Driver'An activity cost driver is a factor that influences or contributes to the expense of certain business operations.
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