What Is Activity Driver Analysis?

Activity driver analysis identifies and assesses the factors involved in the costing of goods and services and is part of activity-based costing (ABC). ABC is an accounting method that identifies and assigns costs to overhead activities and then assig🤪ns those costs to products.

Activity driver analysis compares the different activity drivers and associated costs in an attempt to reduce costs and increase effici🤡ency and helps management trace the cost of certain activities to cost objects.

Understanding Activity Driver Analysis

An ABC system recognizes the relationship between costs, overhead activities, and manufa꧂ctured products, and through this relationship, it assigns indirect costs to products less arbitrarily than traditional methods.

Activity driver analysis identifies the different factors that drive costs associated with an activity. Activity driver analysis factors include causal relationships between drivers and associated cost objects, whether certain drivers are easier to measure, and whether certain activit⛄ies are more costly.

Driver analysis ultimately allows management to evaluate alternative activity drivers that might be more cost-efficient in terms of machine-use, labor, materials, etc. In general, the goal of activity driver analysis is to better 澳洲幸运5开奖号码历史查询:cost management, allocate resources more efficiently, and correctly price items𝐆.

How to Perform an Activity Driver Analysis

An activity driver analysis starts with identifying the various activities in a business. The activities that need to be identified are the ones that consume resources and count towards overhead costs, such as rent, utilities, payroll, and business licenses.

Next, create cost pools. Cost pools are groupings of business activities that are related to one another in regard to sharing similar costs. Once you've created cost pools, identify activity drivers for each cost pool. These drivers need to have a strong relationship with the costs of the activities that have been sorted into the cost pools.

From there, a business must collect cost data on the activity drivers. Such data would i🐻nclude labor and machine hours. The next step is to analyze the data collected, primarily by determining the type of relationship between the activity driver and the associated costs.

Lastly, allocate overhead costs to the goods or servic💦es by the resources consumed from each act🥃ivity.

Benefits of an Activity Driver Analysis

An activity driver analysis helps a business optimize its p🐟rocesses. The analysis requires a business to identify its key activity drivers𒁃, which provides them with insight into where they should allocate resources, thereby improving efficiency and profitability.

In reaching busines꧋s goals, an activity driver analysis will also help identify cost-effective solutions. It can help identify the drivers of customer satisfaction and employ𒅌ee engagement, allowing businesses to assess for possible improvement.

The overall goal of the analysis is to find the key parts of a company that drive the ﷽busine🅰ss and determine how to allocate more resources to those areas in order to streamline processes, reduce costs, and improve profitability.

The Bottom Line

An activity driver analysis helps businesses identify cost drivers for business activities and evaluate the overall operational process. By understanding the activity drivers, a business can improve efficiency, streamline processes, and increase business performance, leading to higher margiꦏns on goods and services.