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Manwel
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Drivers still Right?
ABC is one of the most recent developed evolutions in costing. It has a big impact in allocating the cost to the right object... But still the question is: to what extent are the drivers right and effective? Does ABC require ongoing update of drivers?
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Maggie
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Activity Based Costing Limitation
Cost drivers are not easy to define and obtain.
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Rajendra Patil
Consultant, India
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Definition of Drivers
Generally people use the term 'accuracy' for both the ‘driver’ and the ‘driver data’ interchangeably. It may not be the case here though.
I would suggest that the definition of resource and activity drivers (ref. cam-i cross) must be very accurate. The corresponding data does not have to be so accurate initially. This accuracy of the data can be increased in the future (if required). But if the driver definition is inaccurate, then even if the driver data is accurate, the calculations would still be useless..
A cost driver (by cam-i cross definition) is a reason for the activity to have costs. For example:
Activity - assemble product
Cost driver:
- # of parts to assemble
- design of the product
- quality of the parts received
The cost of the activity ‘assemble product’ would change if # of parts change or design change or the quality of the components change.
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Debasish Basu
Accountant
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Management Accounting
Realistic approach of practical utility. (...)
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