Question

All of the following are examples of activity cost drivers except

Select one:

A. placing a purchase order for raw materials.

B. providing employees with cost information and authorizing them to make decisions.

C. inspecting incoming raw materials.

D. hiring and training a new employee.

Answer 1

Answer is B : Providing employees with cost information and authorizing them to make decisions.

Cost Driver is a cost element that drives the cost of an activity or causes changes in the cost of an activity

A: placing a purchase order for raw materials : This is a cost driver. Whenever any purchase order is placed there are some associated costs which get incurred. With every additional purchase order placed, this cost increases. Thus, no. of purchase orders placed will be helpful in determining the cost of a division or department.

B: Inspecting incoming raw materials: This is a cost driver. Whenever an raw material is received, inspection is done for the quality and quantity. There are some costs getting incurred for these inspections like labour cost. With every additional inspection, this cost increases. Thus, no. of inspections will be helpful in determining the cost of a division or department.

C. Hiring and training a new employee : This is a cost driver. Whenever any new employee is hired, some expenses get incurred in hiring and training him. These expenses increase with every additional hiring. Thus, no. of employees hired will be helpful in determining the hiring cost of a division or department.