In activity based costing what is a cost driver?

A cost driver in activity-based costing (ABC) is a factor that influences or contributes to the cost of an activity. It is a measurable variable that directly correlates with the level of activity performed, such as machine hours, labor hours, or the number of setups. By identifying cost drivers, organizations can more accurately assign costs to products or services based on their actual consumption of resources. This helps in better decision-making and cost management.