Activity Cost Pool

What is an 'Activity Cost Pool'

An activity cost pool is a set of costs which are incurred when certain operations are performed within the organization. By accounting for all of the costs incurred in a specific activity with a pool, it is simpler to assign those costs to products and get an accurate estimate of production costs. Activity cost pool is an aggregate of all the costs required to perform a task such as production.

BREAKING DOWN 'Activity Cost Pool'

The best example of where activity costs are tracked and studied is in manufacturing. Given a plant which produces many different products, financial managers are tasked with the problem of how to accurately assign production costs to each product. Using activity-based costing is a popular method for assigning costs since it is a good compromise between efficiency and accuracy. Assigning costs accurately is important to determine the profitability of products and subsequently, to make rational production decisions.



RELATED TERMS
  1. Overhead Rate

    In managerial accounting, a cost added on to the direct costs ...
  2. Activity-Based Budgeting - ABB

    A method of budgeting in which the activities that incur costs ...
  3. Accrual Accounting

    Accrual accounting is an accounting method that measures the ...
  4. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  5. Unit Cost

    The cost incurred by a company to produce, store and sell one ...
  6. Activity-Based Management - ABM

    A procedure that originated in the 1980s for analyzing the processes ...
Related Articles
  1. Active Trading

    FYI On ROI: A Guide To Calculating Return On Investment

    Return on investment is a simple equation that can give you an edge when fine-tuning your portfolio - here's how to use it.
  2. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  3. Entrepreneurship

    Getting To Know Business Models

    Learning how to assess business models helps investors identify companies that are the best investments.
  4. Entrepreneurship

    Crisis Management Strategies For Business Owners

    When a PR problem arises, your company will be judged on how you handle it. Are you ready?
  5. Professionals

    Management Strategies From A Top CEO

    Find out what this winning manager did to grow one of the biggest companies in the world.
  6. Economics

    What Is The Difference Between Revenue And Profit?

    Think of revenue as the top line of a company’s income statement. Profit is the infamous bottom line.
  7. Fundamental Analysis

    What Is A Good Gearing Ratio?

    Gearing ratios are useful for evaluating a company’s financial fitness through the figures found on its profit and loss statement.
  8. Economics

    Contrasting Gross Profit And Net Income

    The terms “profit” and “income” are largely interchangeable. But there is a real difference between the words “net” and “gross” in the business world.
  9. Investing Basics

    Comparing Bottom Line And Top Line Growth

    Both figures can determine a company’s financial strength, but they are not interchangeable.
  10. Economics

    Explaining the Fixed-Asset Turnover Ratio

    The fixed-asset turnover ratio measures a company’s ability to generate revenue from its fixed assets.
RELATED FAQS
  1. What is a good debt ratio, and what is a bad debt ratio?

    Learn about the factors that influence how investors and lenders evaluate the debt ratio for a company and why the answer ... Read Answer >>
  2. Can working capital be depreciated?

    Learn the difference between expensing and depreciation for current and long-term assets, and how working capital can be ... Read Answer >>
  3. Do working capital funds expire?

    Find out how and why a company's working capital can change over time, though the fund does not actually expire, and how ... Read Answer >>
  4. How much working capital does a small business need?

    Learn about the three primary factors that determine how much working capital is needed by a small business, including business ... Read Answer >>
  5. What does high working capital say about a company's financial prospects?

    Learn about net working capital and what a high figure indicates about a company's financial prospects, including the importance ... Read Answer >>
  6. How can working capital affect a company's finances?

    Understand how working capital may affect a company's financial strength and investment effectiveness, as it changes from ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center