Activity Center

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.

BREAKING DOWN '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.

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