: Identify your top 3–5 largest overhead costs, then ask "What activity makes this cost go up?" That answer is your cost driver.
A is the unit of an activity that causes a change in the cost of that activity. In simple terms: it’s the trigger that makes a cost go up or down. example of cost driver
| Cost Driver | Example of Use | Cost Impact | |-------------|----------------|--------------| | | Running a CNC machine, injection molding machine | Depreciation, maintenance, electricity | | Direct labor hours | Hand-assembling electronics or furniture | Supervisor salaries, payroll taxes, breakroom costs | | Number of setups | Changing a stamping die between car part batches | Setup labor, lost production time, calibration | | Number of inspections | Quality control checks on circuit boards | QA staff, testing equipment, scrap disposal | | Kilowatt-hours (electricity) | Operating a heat treatment furnace | Utility bills | | Pounds of raw material | Steel used in forging auto axles | Material handling, storage, waste disposal | | Number of production runs | Baking different flavors of cookies on same line | Cleaning chemicals, changeover labor | : Identify your top 3–5 largest overhead costs,
A hospital uses patient days to allocate housekeeping costs. A 5-day stay pays 5× more than a 1-day stay. | Cost Driver | Example of Use |
Other examples of cost drivers might include: