What is a cost driver?
A) It is the largest single category of cost in a company.
B) It is a fixed cost that cannot be avoided.
C) It is a factor that causes variations in a cost.
D) It is an indirect cost that is essential to the business.

Question

Quizplus · Accepted Answer

A cost driver is a factor that causes variations in a cost. It could be any activity or quantity that causes a cost to be incurred, such as production volume or machine hours. A cost driver analysis helps to identify the key activities or factors that contribute to the overall cost of a product or service, allowing management to focus on ways to control and minimize those costs. Choices A, B, and D do not accurately describe a cost driver.

What Is a Cost Driver