inal answer:
An activity-based costing system involves identifying the activity that causes the incurrence of a cost. This activity is known as a cost driver or cost pool.
Step-by-step explanation:
In an activity-based costing (ABC) system, the activity that causes the incurrence of a cost is known as a cost driver or cost pool. Cost drivers are specific activities, such as machine setup or product testing, that consume resources and directly influence the cost of a product or service. By identifying these activities, ABC systems help allocate costs more accurately and identify the true cost drivers of a company's products or services.
For example, in a manufacturing company, an activity like machine setup requires labor, electricity, and materials. By measuring the number of machine setups performed, the company can assign these costs to different products based on the number of setups each product requires. This provides a more accurate understanding of the true cost of producing each product.
In summary, an activity-based costing system involves identifying the activity that causes the incurrence of a cost. This activity is known as a cost driver or cost pool. By accurately allocating costs and identifying the true cost drivers, ABC systems provide insights into the cost of producing products or providing services.