ACTIVITY DRIVER Meaning and
Definition
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An activity driver typically refers to a variable or factor that influences the cost or resource usage of a particular business activity or process. It can be considered as a metric or measure that is used to determine the amount of resources consumed by an activity, which in turn affects the overall cost associated with that activity. In other words, an activity driver helps to understand the relationship between the activity being performed and the resources required to carry out that activity.
Activity drivers are commonly used in activity-based costing (ABC) systems, which aim to allocate costs more accurately by linking them to the specific activities that generate the costs. By identifying the key activity drivers, organizations can gain better insights into their cost structures and make more informed decisions regarding resource allocation and process improvement.
For example, in a manufacturing setting, the number of units produced can be an activity driver that influences the cost of production activities such as material usage, labor hours, and machine hours. In this case, the number of units serves as a measure of the level of activity, and understanding its relationship with the associated costs can help managers make better decisions regarding production planning, cost control, and pricing.
Overall, activity drivers play a crucial role in cost management and resource optimization, enabling organizations to identify and understand the factors that drive costs, improve efficiency, and enhance overall performance.
Etymology of ACTIVITY DRIVER
The word "activity driver" does not have a specific etymology because it is a compound term consisting of two separate words: "activity" and "driver".The word "activity" originates from the Latin word "activitas", derived from the verb "agere", meaning "to do" or "to act". The Latin term evolved into the Old French word "activité" and eventually entered the English language as "activity". It refers to a state of being active, engaged in action, or involved in some kind of task or work.The word "driver" comes from the Middle English word "dryven" and the Old English word "drifan", both of which mean "to urge forward" or "to drive". Over time, "driver" became the standard term for someone or something that propels or directs movement, such as a person who operates a vehicle or an influential factor that motivates or stimulates certain outcomes.
