Business, Legal & Accounting Glossary
An activity measure is a standard by which the primary output of an activity is gauged.
In activity based costing systems, this is a measure of the volume or rate of activity in an activity cost pool used as a basis for allocating costs.
Ideally, the activity measure selected will be such that any rise or fall in the measure closely correlates with a rise or fall in the activities total cost.
As a result, the terms activity measure and cost driver are often used anonymously.
An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool.
Standard by which the primary output of an activity is gauged.
Examples of activity measures include:
In a large international organisation there may potentially be thousands of activity measures, whereas in a small organisation perhaps only 20-30 measures may apply.
Note; there is no optimal number of activity measures applicable to an organisation. It’s also worth mentioning that managers also have a tendency to prioritise one type of activity measure over another whilst measuring performance.
The terms activity measure and cost driver are often used synonymously.
Some activity measure, like labour hours for example; closely correlate to the volume of productions, whereas others, such as the volume of orders, aren’t.
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This glossary post was last updated: 7th May, 2019 | 425 Views.