Activity Cost Drivers

An activity cost driver is the ABC equivalent of a cost element. The distinction between the two lies within the nature of the driver and the assigned amount.

An activity cost driver has a source within the system. It is a quantitative measure of the output of an activity. Each time a cost driver is executed, the costs from the connected activity are attributed to the part(s) to which it is connected.

Examples of activity cost drivers are the number of moves, the number of issues, the number of receipts, and the number of setups. Examples of cost elements are the number of setup hours, the number of machine hours, and the number of labor hours.

Another distinction between the activity cost driver and the cost element is that the number of issues and number of receipts, although traceable within the system, are not set up by the user in the bill of material or the routings. The numbers of these activities must be set up within the costing system.

Transaction Drivers and Duration Drivers

The system supports both transaction drivers and duration drivers. A transaction driver counts the frequency with which the activity occurs. Transaction drivers can be used when all outputs have an equal demand on the activity. Examples of transaction drivers are the number of setups and the number of issues.

The duration drivers represent the amount of time required to perform an activity. The time required for an activity can vary among different inventory parts. Examples of duration drivers are labor setup hours and machine runtime hours.

Pre-defined Activity Cost Drivers

The system creates a set of default activity cost drivers when a site is created;