A cloud hosting provider is implementing Activity-Based Costing (ABC). They have identified 'Server Maintenance' as a major cost pool.

Which of the following would be the most appropriate cost driver for this cost pool?

Answer options:

Total square footage of the data center

Number of server reboots and patches applied

Direct labor hours of the sales team

Number of customer invoices generated

How to approach this question

A cost driver must have a strong cause-and-effect relationship with the cost pool. Ask yourself: what activity causes maintenance costs to increase?

Full Answer

B.Number of server reboots and patches applied✓ Correct

In ABC, a cost driver is the factor that causes a change in the cost of an activity. The number of server reboots and patches applied directly drives the workload and cost of the 'Server Maintenance' activity.

Common mistakes

Choosing a traditional volume-based driver (like floor space) which is used in absorption costing for rent, rather than an activity-based driver.

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