ABC cost drivers

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July 9, 2016 at 7:12 pm #325030
lince0999
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Hi,

Please could you explain why “for long-term variable overhead costs, the cost driver will be the volume of activity”… why is this true? Is it due to economies of scale when buying many raw materials?

Thank you in advance, I am very grateful for having Open Tuition!

Ismael
July 10, 2016 at 8:07 am #325184
John Moffat
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By definition, variable overheads should be fixed per unit and therefore total variable costs will vary with the number of units produced (i.e. with the volume of activity).

That is why ABC is primarily concerned with the fixed overheads.
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