Cost Drivers, Activity Based Costing, & Economic Value Added

Cost Drivers, Activity Based Costing (ABC), and Economic Value Added (EVA) are all important tools for managing and analysing the costs associated with a company’s operations. Cost drivers are factors that drive the cost of a particular activity, product, or service, and are used in ABC to identify and allocate costs to specific products or services. ABC is a costing method that uses cost drivers to allocate indirect costs, such as overhead, to specific products or services based on their use of resources.

EVA, on the other hand, is a performance measurement tool that calculates the economic profit of a company, considering both its operating costs and its opportunity cost of capital. These tools provide valuable insights into a company’s cost structure and profitability and can be used to inform decision-making and improve financial performance. Effective use of cost drivers, ABC, and EVA requires a profound understanding of a company’s operations and financials, as well as the ability to analyse and interpret financial and other operational data.