Which of the following best defines a cost driver in accounting?

• A. A type of expense that is fixed regardless of production volume.
• B. A factor that causes a change in the cost of an activity.
• C. A method used to allocate revenues among departments.
• D. A financial statement showing company assets and liabilities.

Answer: (B)

Verified step by step guidance

1. Understand the concept of a cost driver: A cost driver is a factor or activity that causes a change in the cost of performing a task or producing a product. It is a key concept in cost accounting and activity-based costing.
2. Analyze the options provided in the question: Carefully read each option and determine whether it aligns with the definition of a cost driver.
3. Option 1: 'A type of expense that is fixed regardless of production volume' - This describes a fixed cost, not a cost driver. Fixed costs do not change with activity levels.
4. Option 2: 'A factor that causes a change in the cost of an activity' - This matches the definition of a cost driver, as it directly influences the cost of an activity.
5. Option 3 and 4: 'A method used to allocate revenues among departments' and 'A financial statement showing company assets and liabilities' - These are unrelated to the concept of a cost driver. They describe revenue allocation and a balance sheet, respectively.