If the costs equal revenue, then the business is at a point of indifference and it can be closed or continued depending on other variables apart from cost or how costs can possibly be adjusted. If the costs are less than revenue, there is profit and a probability of expansion. If the cost of production exceeds the revenue derived from a sale, there is a great probability of the business closing down. In a business venture, the major determinant of whether there will be continuity or discontinuity is cost. In such a scenario, the number of units of electricity consumed is a cost driver.Īpplication of a Cost Driver in Computing a Product’s Cost For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity. A cost driver is the direct cause of a cost and its effect is on the total cost incurred.
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