What is an Activity Cost Pool?

An activity cost pool is an account in which is aggregated a number of costs that are related to a certain type of activity. The grand total of these costs is then allocated to products and other cost objects in order to gain a better understanding of the total costs incurred by a product or cost object. The cost pool concept is most heavily used in an activity-based costing system, and least used when there are few overhead costs to be allocated.

What is the Optimal Number of Activity Cost Pools?

Several cost pools may be used in order to more distinctly identify the costs of different activities, but doing so also requires more accounting effort. This is a particular concern when increasing the number of cost pools either increases the cost of accounting operations or extends the time required to close the books at the end of each reporting period. Consequently, most organizations organize their costs into only a small number of activity cost pools.