Cost pools and their cost drivers

 · Each activity cost pool is then assigned an Activity Cost Driver. With the help of these drivers, the cost is allocated to products. Cost driver analysis is the key to utilizing the concept of ABC Costing to its full potential. Correct activity cost driver determination is vital for effective product costing. There are a lot of management decisions that rely on product www.doorway.rus: 1. 4 rows ·  · Listing the cost drivers and then separating them into cost pools is a useful activity to.  · A cost pool is a grouping of individual costs, typically by department or service center. Cost allocations are then made from the cost pool. For example, the cost of the maintenance department is accumulated in a cost pool and then allocated to those departments using its services. Cost pools are commonly used for the allocation of factory overhead to units of production, as Estimated Reading Time: 40 secs.

The cost driver is that variable or factor which has an effect and causes the relationship with the total cost. This is the cause, and the cost incurred is the effect of it. Its analysis means identifying all the possible cost drivers for a particular type of activity or cost etc. and explains their cause and effect relationship with the event. A cost driver is a factor that creates or drives the cost of the activity. It is the root cause of why a particular cost occurred. Activities consume resources while customers, products, and channels of production consume activities. Understanding this is fundamental to the cost allocation concept using cost drivers. A Cost Pool is a kind of cost strategy to identify the cost incurred by the individual departments or service sectors of the business entity. It helps in finding out the total of expenses incurred in manufacturing goods and in allocating the same to the different departments or service sectors based on some reasonable identifier known as a cost driver.

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