Activity Cost Pool

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DEFINITION of 'Activity Cost Pool'

In managerial accounting, 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.

INVESTOPEDIA EXPLAINS '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.



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