Which of the following is an activity-based cost driver?
A) Number of machine setups
B) Material cost
C) Machine hours
D) All of these answers are correct.

Question

Quizplus · Accepted Answer

Number of machine setups is an activity-based cost driver because it is directly related to the setup cost, which is a cost that is incurred only when a machine is setup to produce a different product or batch. This cost is not dependent on the amount of material used or time spent on the machine. Therefore, it is a more accurate way to allocate the setup cost to the products produced.

B, C and D are incorrect because material cost and machine hours are volume-based cost drivers, which are dependent on the quantity or time spent on the machine, regardless of setup cost or complexity. D is incorrect because not all of the answers are correct.

Which of the Following Is an Activity-Based Cost Driver