BUS 254 Lecture Notes - Lecture 3: Cost Driver

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 254
• Professor: Hwee Cheng Tan

Document Summary

An activity is any discrete task that an organisation perform in order to make or deliver a product or service. Attempt to account for costs as direct cost of production. Good for simple organisations, little processes, few department. More detailed information about activity pools and amount of used and unused resources. Suitable when product differ greatly, large proportion of overheads, product lines are diverse. Activity: any event, action that causes a cost to be incurred in producing a product or providing a service. Activity cost pool: cost for a distinct type of activity. Cost drivers: any factors or activities that have a direct cause-effect relationship with the resources consumed. Ex. unit level: activity affects all units (machining, drilling, laminating) Batch leveling: activity affects batches of units (materials handling, packaging) Product sustaining level: activity supports entire product lines (engineering, maintenance) Ex. machine hours, computer time, customers served, pages typed. Causal criterion: what causes the cost more lamination, more cost incurred.