INCOME STATEMENT: In the income statement, revenue and expenses are listed. In the expense section, one can look into categories of expenses and classify them as cost driver: fixed costs or variable costs.

CHART OF ACCOUNT: Track various departments and function units through expense accounts from the chart of accounts. Hidden costs? All costs should  be captured by the accounting system and allocated to various accounts in the chart of accounts.

CORRUPTION: For a going concerning operating in countries where bribes are paid, these "expenses" may be difficult to report or recognized by the accounting system (legally). These may be special cases.

REFERENCES: see attached files on IAS and IFRS.

I presume you are referring to "drivers" to calculate the costs of products, channels, and customers typically used in an ABC system. (There are many influencing cost drivers, like weather, that cause costing drivers.)

Next, there are resource cost drivers and activity cost drivers. The former are more easily determined, and are typically percentage splits (totaling 100%) of labor and others for non-wage expenses.

The latter is involves a technique. After the activity dictionary is created, the simple question is "What would make the amount of the activity cost for each activity significantly increase or decrease?" The answer should be "number of X."

So, for example in a hospital patient profitability, if the work activity is "perform patient blood tests" then the activity cost driver is "number of blood tests."

I have implemented ABC for 30+ years and written books and many articles on ABC.

Hello colleague,

Generally, a study of the strength of the correlation between a given level of activity and indirect costs of this activity would graded a cost determinants according to their strength. You may look at https://www.researchgate.net/publication/271800946___________%28ABCosting%29, but the article is in Russian.

Article Опыт консультанта в разработке системы калькулирования издер...

Hello,

maybe a "structured brainstorming" approach helps. In 2002 I have developed a structure for value drivers that could also be used for cost drivers. It consists of direct drivers (generic and specific ones) and indirect drivers (culture, communication, management style, organization type) that influence the direct drivers. Generic drivers are usually currency denominated, specific ones are usually non-financial drivers. It is in my HSG dissertation no 2697, Difo Druck Bamberg 2002. 

Many Japanese management methods have gained international recognition.

Why not this time?  See the link below. The article, published some 20 years ago, might seem a little dated, but remains largely current. 

Best regards ;-)

http://www.sciencedirect.com/science/article/pii/S1044500585710293

FCA as a tool for identifying a cost driver - it's worth thinking!

As we know, cost driver is an activity or factor that has a direct cause-effect relationship with the resources consumed. For example, for purchasing: cost driver could be number of orders, for setting up machines: number of setups, for machining: machine hours, and for quality control: number of inspections. As the complexity of a product's manufacturing operation increases, the number of activities and cost drivers used in an ABC system will most likely increase. Consequently, for internal control, financial accounting, or other issues, relevant cost drivers that have direct cause-effect relationship with the resources consumed could be used.  

I would sugest instead Of brainstorming, a very close observation Of the processes by wich products or services are generated. A close observation on causal relationships  beetween acts, products,  services and what causes the costs,  along with the communication with People responsible for those activities, should give the perception about what factors are cost drivers. 

Also, an analysis on the time expended by HR in each activity can be very useful to understand how People/HR costs contribute to the activities. 

I wrote the second comment above. I am a practitioner and consultant who has implemented ABC many times. I suggest those interested in the topic re-read my comment above. My opinion is the replies above are overly academic. Identifying activity cost drivers is not that difficult. Ahmed's remark to comply with a cause-and-effect relationship is correct. ABC basically disaggregates cost pools and de-averages the distorted costs from larger (and worse yet a single) cost pool. 

I was trained by Professor Robert S. Kaplan of the Harvard Business School in 1988 when I was KPMG consulting. Bob had a contract with KPMG. He advised, "It is better to be approximately correct than precisely inaccurate ! "

For those interested in it, I have again attached my Institute of Management Accountants Statement on Management Accounting titled "Implementing ABC."  

I am surprise by the wording of the question.

A driver is always the expression of a law of causality. A law of causality cannot be sought by brainstorming. It is the direct expression of what is experienced by the people concerned.

It must be recognized that the literature on the ABC is sometimes ambiguous. It evokes the choice of the driver, suggesting that the options are multiple.

There are actually several options but which have nothing randomness. The analyst or project group is facing two options:

- The first relates to the quality of the desired causal relationship, and it can be put in relation with the homogeneity of the activity. If we take as an example the activity “Vendors accounting” two drivers are always cited by the accountants: the number of invoices and number of invoice lines. Referring to the words of Kaplan quoted by G. Cokins in a recent comment, the question is then whether we prefer a simple and rough driver (the number of invoices) or an accurate system requiring new data (the number of invoice lines). The choice between these two options can of course rely on a statistical analysis of the composition of the invoices. If the establishment of the ABC aims to the simple calculation of cost and local productivity measurement, one of these options will probably preferred.

- The second choice is relative to the preference for immediate (short-term) causality law or the underlying causality (long term). To continue the same example, the lines of invoices correspond to specific part numbers. The number of part number is therefore a potential driver. But it varies under the influence of factors unrelated to activity ‘Vendors accounting” but will have an indirect impact on it. If the establishment of the ABC aims to develop a transversal vision of the organization and cooperation between activities within process, this choice should be preferred.

I hope that these explanations, gained from a long field experience, will convince you that the choice of a driver is not an exercise of brainstorming but a confrontation to the field supplemented by questioning on the ambition pursued through the implementation of ABC.

Dear Eugenio Rinella, I never thought that brainstorming could be a methodology to do these. I tink the first stage is analysis, on the system to a situation in order to be target of ABC. The next stage is to try to identify causal relationships bewteen a cause and an effect - beeing the effect the apearance of costs. This last stage can be confirmed by statistical analisis, like a regression, or another of different kind.

Eugenio ... I appreciate Pierre's reference to me in his answer. He is spot-on correct that cost drivers (which I prefer to refer to as "activity drivers" ... the lower section of a multiple-stage ABC cost assignment network) should comply with "costing's causality principle".

I am not a faculty member or a PhD. I am a practitioner. I have implement ABC since 1988 Here is my simple rule: For each activity cost (which traditionally is referred to as a "cost pool") ask, "What would make the amount of the activity cost to significantly increase or decrease?" The answer should be "The number of XXXX." The XXXX is the activity driver. No brainstorming. Follow this rule for every activity cost, and the result will be reasonably accurate costs of the "final cost objects" (i.e., product, service-line, channel, and customer costs).

I have attached an article I authored on ABC this year for the Institute of Management Accountants which may be useful

Gary ... Gary Cokins

https://www.researchgate.net/publication/303484302_Relevant_Costing_Can_the_Method_Coincide_with_Different_Industries

Article Relevant Costing: Can the Method Coincide with Different Industries?

Nabila ... I like your paper. I agree that costing in agriculture has been limited. If you have time, download my article in the file in my prior "answer" above. It describes how to define and select cost drivers. The title of the paper is "Implementing Activity-Based Costing (ABC)". I welcome dialog. ... Gary ... Gary Cokins