The cost driver rate indicates the rate an activity's cost increases with the volume of activity. For instance, cost driver rate might show the ratio of money earned per product sold or cost per business service offered. This rate gives the business owner a baseline to help in determining the final price for his goods or services.
Things You'll Need
- Activity cost
- Activity volume
Determine the activity volume to use for the activity cost and activity volume if given excess information by looking at what you want to examine the rate of. For instance, if you need the cost per widget to make, and you have been given the cost for total widget production, number of widgets, the rent cost for the building and number of employees, you would use the number of widgets for the activity volume as you need to measure the rate per widget.
Find the total cost for the activity in your given information. For instance, you would use the total cost to produce all of the widgets.
Divide the activity cost by the volume to find the cost driver rate. For example, if you made 100 widgets for a cost of $3,000: $3,000/100 = $30 per widget.
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