DEFINITION of 'Activity Driver Analysis'

The identification and assessment of the factors that are involved in the costing of goods and services. Activity driver analysis is part of activity-based costing, and helps management trace the cost of certain activities to cost objects. Activity driver analysis compares the different activity drivers and associated costs in an attempt to reduce costs and increase efficiency.

BREAKING DOWN 'Activity Driver Analysis'

Activity-based costing is a type of costing that identifies activities within the business and estimates the resources required to fulfill each activity. Activity driver analysis identifies the different factors that drive costs associated with an activity, and allows management to evaluate alternative activity drivers that might be more cost efficient in terms of machine hours, labor, materials etc.

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