A cost driver is the direct cause of a cost, and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a.

A cost driver: • Is any factor whose change causes a change in the total cost of a related cost object. Hence a change in the level of cost driver will cause a change in the level of the total cost of a related cost object. Examples of cost driver used in the following business units: • Research & Development:- Number of research projects, technical complexities of the projects • Design of products, services & process:- number of products in design, number of parts per product, • Marketing:- number of advertisement run, number of sales personnel, sales revenue • Distribution:-number of items distributed, number of customers, weight of items distributed • Customer services:-numbers of service calls, hours spent in servicing of products.

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