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What des mean by cost drivers and cost pool?
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Cost drivers are things in your business process that affect the costs of your goods and services. An example would be, say, the price of an input. If you are in the jewelery business, the price of gold might be a cost driver, or the cost of labor where your gold is mined. Cost drivers are the underlying elements that cause costs to rise or fall. A less direct example might be square footage in factory space. A factory owner who pays rent per square foot can reduce costs by reducing square footage- the underlying cost driver is the square footage itself.
A cost pool is a set of direct and indirect costs associated with a specific cost driver. They are used to allocate costs to specific projects inside a business. Cost pools are often subdivided by department and function inside that department. For instance, if a research project might have a cost pool for administrative costs or utility usage.
I hope this helps demystify the concepts.
Posted by chaseguinn on June 14, 2013 at 5:38 PM (Answer #1)
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