Cost-driver sanity deck
Recall practical tests for choosing an activity cost driver.
Core test What is the first question for any proposed cost driver? What activity consumes the resource? If the answer is unclear, the driver is probably a denominator rather than a cause. Driver fit Revenue base or activity driver? Use a revenue base only when you can defend it as policy, not as activity consumption. Objection The causal driver is harder to collect. Can we just use labor hours? You are choosing an ABC driver for engineering changes. Your line Use labor hours only if engineering work rises with labor hours. If changes drive the work, collect change orders for…
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