These are groupings of individual costs related to a specific activity. For example, all costs associated with "procurement" (salaries, software, supplies) would be grouped into a single procurement cost pool.
Activity-based costing (ABC) is a sophisticated accounting methodology that assigns overhead and indirect costs to products and services based on the specific activities they consume. Unlike traditional costing, which often spreads overhead evenly based on production volume, ABC provides a granular view of costs by identifying the causal relationships between resources, activities, and final outputs. Core Components of the ABC Model