Posted in Finance, Accounting and Economics Terms, Total Reads: 303
Definition: Activity Cost Pool
When a group of activities is clubbed together in a pool to ascertain the costs incurred in that pool it is called activity cost pool account. It is very useful in allocating costs to the products and get an accurate cost of production.
In managerial accounting, activity based costing is very useful as it helps in assigning costs to the products on the basis of different processes and activities. Assigning costs helps to determine the profitability of the product and in turn helps in rational decision making.
For Example in a XYZ towel manufacturing concern the total costs are Rs. 1,00,000. The operations can be divided into three main pools: weaving, dyeing and cut, stitch & packaging.
The cost drivers that are to be assigned to different pools are: machine hours, labour hours, maintenance hours, and number of units produced. Now Rs. 1,00,000 can be assigned to different pools and it would the management in analysing the efficiency of different activities and help take rational decisions.