Activity Center

AAA

DEFINITION of 'Activity Center '

A pool of activity costs associated with particular processes and used in activity-based costing (ABC) systems. Each activity center is separately identified and can be assigned to specific cost drivers. In this manner, a large overhead cost pool can be subdivided into several activity centers to aid in cost analysis.

INVESTOPEDIA EXPLAINS 'Activity Center '

For example, overhead costs in a manufacturing plant might be divided into three different activity centers: machining activity costs, assembly activity costs and quality inspection activity costs. Each of these three activity centers has associated cost drivers, or factors that influence the costs. Machining activity costs, for instance, take into consideration machine or processing hours. Assembly activity costs consider the total number of parts used. Quality inspection activity costs reflect the number of inspections that must occur.

RELATED TERMS
  1. Activity Driver Analysis

    The identification and assessment of the factors that are involved ...
  2. Average-Cost Method

    A costing method by which the value of a pool of assets or expenses ...
  3. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  4. Activity-Based Management - ABM

    A procedure that originated in the 1980s for analyzing the processes ...
  5. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  6. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
RELATED FAQS
  1. What are the risks of having both high operating leverage and high financial leverage?

    In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their ... Read Full Answer >>
  2. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  3. What can working capital turnover ratios tell a trader?

    A company's working capital turnover ratio is traditionally positively correlated with business performance. A high, or better ... Read Full Answer >>
  4. What is a negative write-off?

    A negative write-off is a write-off conducted by a company or accountant after deciding not to pay back an individual or ... Read Full Answer >>
  5. What metrics can be used when evaluating a telecommunications company to ensure its ...

    Cash flow analysis has been transformed since the widespread introduction of statements of cash flow, and investors have ... Read Full Answer >>
  6. How do you record adjustments for accrued revenue?

    An accountant records adjustments for accrued revenues through debit and credit journal entries in defined accounting periods ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  2. Investing

    Operating Leverage Captures Relationships

    Find out how fixed and variable costs interact to shed new light on old companies.
  3. Fundamental Analysis

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  4. Professionals

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  5. Fundamental Analysis

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  6. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  7. Economics

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  8. Economics

    What's Recorded in a Cash Book?

    A cash book is an accounting book that records all cash receipts and cash payments before they’re recorded in a business’s general ledger.
  9. Economics

    Explaining Capital Reserve

    Capital reserve is an account on a company’s or municipality’s balance sheet that is dedicated to money reserved for long-term or large-scale projects.
  10. Economics

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!