ICAEW BIP · Chapter 2 · Question 11 of 12
Under activity-based costing, which of the following is most likely to be the cost driver for the costs of the purchasing department?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The number of purchase orders raised
Explanation
A cost driver is the factor that causes the costs of an activity to change. Purchasing department costs are driven mainly by the number of orders processed, not by labour hours or output volume. Using volume-based drivers for such costs is the weakness of traditional absorption costing that ABC aims to overcome.
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