Cost Drivers are important in ABC because our ABC analysis looks at what is "driving" (or causing) an overhead cost to increase/decrease.More specifically, within the context of ABC, cost drivers are considered to be activities - but more simply stated, I like to say that cost drivers can something that can be counted.For instance, how many units? how many hours?how many batches?

It can get complex because there may be situations where there a cost can have more than one cost driver.But simply recognizing that fact already gives us more information and understanding!

The cost driver concept isn't limited to overhead costs.Let's dig in to look at what drives the cost of my fleet of delivery trucks?Number of miles driven might be the driver for fuel cost. (Note that price per gallon is not a cost driver in this context - you can't count price per gallon, but you can count number of miles.)The age of the delivery trucks might drive maintenance cost, but we need to somehow state this in a manner that can be counted - so how about using the cumulative number of years that trucks have been in operation?

When you understand the cost driver, then you can begin to try to manage the cost.Maybe the routing for the fleet of trucks can be improved?Maybe trucks aren't dispatched unless they are 75% full?Or at some point you find the sweet spot for the cumulative age of the truck fleet so that you replace vehicles at the right point in time.

Can you think of some cost driver applications that might be helpful to you?