A cost pool in an activity-based costing system is a collection of costs related to a similar cause or activity within a certain cost center, aiming to more accurately distribute costs to products or services based on activities.
A cost pool in an activity-based costing system is a collection of costs that are related to a certain cost center that share a common cause of costs to be incurred. The purpose of a cost pool is to distribute costs to products or services based on the activities that generate those costs. Unlike a fixed cost like rent, which does not change regardless of the level of production, activity-based costing attempts to link variable costs (or even fixed costs in some cases) to the actual activities that incur them.
By grouping costs into cost pools and then assigning them to products or services based on actual consumption, businesses can get a more accurate picture of product or service costs. For example, if a company has a cost pool for machine maintenance, it would distribute those costs to products based on each product's usage of the machines. Other cost pools might include purchasing, quality control, or shipping, depending on the various activities within the company that incur costs.