What Are the Different Methods of Cost Driver Analysis?

Cost drivers are the causes of costs. It is the premise of activity-based costing. The combination of multiple cost drivers determines the cost of a given activity. Different enterprises have different strategic drivers of cost. Therefore, identifying the cost drivers of each value activity, clarifying the reasons for the formation and change of the cost status of each value activity, and providing an effective way to improve value activities and strengthen cost control. Since the mid-to-late 1980s, the activity-based costing method advocated by the famous American accounting professor Kaplan and others has been successfully applied to many advanced manufacturing companies in the United States and Canada. It was found that this method not only solved the problem of cost distortion, The information it provides lays a good foundation for cost analysis and control.

Cost driver analysis

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Cost drivers are the causes of costs. It is the premise of activity-based costing. The combination of multiple cost drivers determines the cost of a given activity. Different enterprises have different strategic drivers of cost. Therefore, identifying the cost drivers of each value activity, clarifying the reasons for the formation and change of the cost status of each value activity, and providing an effective way to improve value activities and strengthen cost control. Since the mid-to-late 1980s, the activity-based costing method advocated by the famous American accounting professor Kaplan and others has been successfully applied to many advanced manufacturing companies in the United States and Canada. It was found that this method not only solved the problem of cost distortion, The information it provides lays a good foundation for cost analysis and control.

Chinese name

Cost driver analysis

Foreign name

Cost driver analysis

Presenter

Kaplan et al

Definition

Cause of cost

Location

Core concepts of activity-based costing

Content

Analysis of execution and structural cost drivers

Although cost drivers are the core concept of activity-based costing, they are not exclusive to

Executive Cost Driver Analysis

Execution cost driver analysis includes analysis of operational drivers and resource drivers for each production and operation activity. Operational motivation refers to the way and reason that the operation contributes to the final product, such as the purchase operation motivation is to send the purchase order quantity. The value-added of an operation can be judged by analyzing the relationship between the cause of the operation and the final output: the value-added operation is the value-added operation for the irreplaceable operation required for the production of the final product or the operation that provides unique value to the final product; otherwise, it is non-value-added. operation. The purchase, processing, and assembly of general enterprises are value-added operations, and most of the warehousing, handling, inspection, and waiting and delays in the supply, production, and sales links are non-value-added operations. Should be reduced until eliminated, so that the cost of the product can be reduced while ensuring the value of the output. Resource driver refers to the way and reason that resources are consumed by each job. It is the basic basis for allocating resource costs to jobs. For example, the resource driver for the purchase operation is the number of employees engaged in this activity. The analysis of resource drivers is conducive to reflecting and improving operation efficiency. When determining the efficiency of operations, the company's operations can be compared with similar operations in the same industry, and then through the analysis and control of resource drivers, to find effective ways to improve the efficiency of operations, in particular, it should be noted that analysis and control account for a significant portion of the total cost Proportion or resource motivation for value activity that is gradually increasing. For example, measures such as reducing the number of workers, reducing operating time, and improving equipment utilization can reduce resource consumption, improve operating efficiency, and reduce product costs.

Structural cost driver analysis

Structural cost driver analysis. When we change the perspective from the specific activities of the enterprise to the enterprise as a whole, we will find that most of the enterprise costs have been determined before the specific production and operation activities have begun. The influencing factors of these costs are called Structural cost drivers. Porter believes that the ten structural cost drivers that affect corporate value activities are: economies of scale and learning. Production capacity utilization patterns, linkages, interrelationships, integration, timing, autonomous policies, geographic location, and institutional factors. Structural cost drivers affect the cost position of enterprises from a deep level. Such as industrial policy, appropriate scale, site selection, decision on market positioning, process technology and product mix, etc., will determine its cost position for a long time. In order to create long-term cost advantages, these cost drivers should be controlled more effectively than competitors. For example, in order to cope with fierce competition, Southwest Airlines has positioned its services on short flights on specific routes rather than comprehensive routes, avoided engaging in large-scale airport operations, adopted measures such as canceling special services such as dining and reservations, and establishing automatic ticket sales systems to lower the cost. As a result, its daily flights and low prices have attracted many short-haul travelers, and its cost leadership has been established.