Activity cost pool

Activity cost pool,

Definition of Activity cost pool:

  1. An activity cost pool is an aggregate of all the costs associated with performing a particular business task, such as making a particular product. By pooling all costs incurred in a particular task, it is simpler to get an accurate estimate of the cost of that task.

  2. One example of the use of activity costs is in manufacturing. A manager may be asked to evaluate production costs of each product produced by a factory. Activity-based costing (ABC) is a common method for determining those production costs. ABC defines production as consisting of a variety of activities, and it assigns costs to those activities. For example, machine set-up might be one activity associated with the production of a particular product. The cost of set-up would be one cost included in an activity cost pool. Purchasing materials might be another cost assigned to the pool. Assigning costs accurately is important to determine the profitability of products and subsequently to make rational production decisions.

  3. Aggregation of all associated cost elements of an activity.

Meaning of Activity cost pool & Activity cost pool Definition