What is a cost driver?

A cost driver is a factor that causes or influences a change in the cost of a product or service. They can be classified as either direct or indirect. Direct cost drivers are those that can be directly traced to a particular product or service, while indirect cost drivers are those that cannot be directly traced to a particular product or service.

An example of a direct cost driver might be the number of hours worked on a product, while an indirect cost driver might be the cost of rent for the factory where the product is made. Cost drivers are important to understand because they can help managers make decisions about how to allocate resources and optimize their pricing strategies.