1.
Question: Comment on the practical reality, and the academic truth that the
Solution
Cost Driver
cost driver is the unit of activity that drive the change of cost in production or serving. it
refer to actovity that cause to be incurred.in traditional costing, cost driver use to allocate
overhead cost to cost object relates to quantity of output.
Nature of cost driver/ Behaviour of cost driver
1) fixed cost
2) variable cost
1) fixed cost
a) costant in total
b) per unit decrease with increase capacity
2) variable cost
a) costant per unit
b) total increase with acitivity
ABC Analysis
Meaning
ABC analysis is basis tool of analysing the characristics of range of item at aggregate level. Abc
analysis is an invemtory categorisation method whic consis of diving the item into three
categories(A,B,C)

2.
Item A- being most valuable item
Item C - being least valuable item.
this method aims to draw attention of management on critical few item ie most valuable item, not
trival many i.e least value item
it is also called vilferdo pareto method or 80:20 analysis.
20% of population own 80% of nation wealth.
80% of popualtion own 20% wealth of nation.
Application of ABC Analysis
a) Inventory control
b) Production & operation Management
c)Material Management
d) Pricing Strategy