In ABC, what is a cost pool?

In ABC, what is a cost pool?

• A. Pooling of overhead costs that relate to a specific activity
• B. A group of products
• C. A fixed cost
• D. A measure of production volume

Answer: (A)

In activity-based costing, costs are grouped into cost pools that relate to specific activities. This allows overhead to be allocated to products based on how much of each activity the product uses, using a cost driver for each pool (like number of setups, hours of machining, or inspections). By pooling overhead costs by activity, you get a more accurate reflection of the resources consumed by different products. Pooling overhead costs by activity is the concept described. The other options describe a group of products, a fixed cost, or a measure of production volume, none of which capture the idea of grouping costs by activity for allocation.

In activity-based costing, costs are grouped into cost pools that relate to specific activities. This allows overhead to be allocated to products based on how much of each activity the product uses, using a cost driver for each pool (like number of setups, hours of machining, or inspections). By pooling overhead costs by activity, you get a more accurate reflection of the resources consumed by different products.

Pooling overhead costs by activity is the concept described. The other options describe a group of products, a fixed cost, or a measure of production volume, none of which capture the idea of grouping costs by activity for allocation.