4.2 Activity Based-Costing Method. An activity center is a unit of the organization that performs some activity. For example, the costs of.

For each of the activity cost pools, a cost driver must be determined. There are basically three types of cost drivers: Volume: The cost driver is based on units of work (e.g., number of orders.) The cost of the activity increases as more units are processed.

Time: The cost driver is based on the length of time taken to complete the activity. The cost of the activity increases based on the length of time required to complete the activity. It does not matter how many products are produced (e.g., when retooling machines, the cost driver is the length of time required to complete the retooling of machines). Charge: The cost for the entire activity is charged directly to the cost object (e.g., all costs associated with the retooling of machines for a product is charged directly to the end-product).

In general, a charge-type cost driver is used very rarely. The most common drivers are volume and time. O O Bluecon 8 Rapidshare Download Free Software Programs Online.

The driver used depends on the nature of the activity. The cost of the activity may increase based on the number of units handled or based on the length of time required to complete the activity. It could also be a combination of these two driver types. For example, the time required to test a product may vary based on the product under test and the number of units to be tested.