What is a Surrogate Activity Driver?

A surrogate activity driver is a driver that is closely correlated to the performance of an activity, but which is not descriptive of it. This option is used when it is too difficult or expensive to collect data about an activity driver. Surrogate activity drivers are especially cost-effective when the related information is already being collected by an existing data collection system.

Example of a Surrogate Activity Driver

Here are several examples of surrogate activity drivers:

Using machine hours instead of actual power consumption. Rather than directly measuring the exact kilowatt-hours of electricity consumed by machinery (which may be costly or complex to track), a company uses total machine hours as a surrogate, assuming electricity usage strongly correlates to machine operating time.
Using number of purchase orders instead of actual procurement labor hours. Instead of tracking the actual hours spent by purchasing personnel processing each procurement order, the company uses the total number of purchase orders issued, assuming a high correlation between number of orders and purchasing department workload.
Using production quantity instead of direct inspection hours. If actual inspection hours or inspection details are difficult to capture, the number of finished units produced may serve as a proxy or surrogate, presuming that inspection workload correlates strongly with production volume.
Using number of employees instead of actual human resources support hours. Rather than tracking the exact time Human Resources (HR) spends supporting employees individually, the organization uses employee headcount as a surrogate activity driver for allocating HR-related costs.
Using sales revenue instead of actual marketing efforts. It may be difficult or costly to accurately record the hours or resources spent on each marketing campaign or initiative. As an alternative, the company may use total sales revenue generated by each product line or customer segment as a surrogate driver to allocate marketing costs, assuming a strong relationship between revenue and marketing activities.

These examples illustrate common scenarios in which surrogate activity drivers are practical choices due to cost, complexity, or impracticality of obtaining precise measures, while still providing reasonably accurate cost assignments in activity-based costing and management efforts.