Activity Cost Pool

All the costs for a business activity.

If you’re creating a product, it can include setup, material costs, labor and clean up. Let’s say Tim’s Furniture wants to explore making a new style of desks. It has two designs, but wants to manufacture the one that will generate the most money. Tim uses activity cost pool to see which is better for his business. He includes the cost to setup the equipment to cut the wood, all the inputs, and the cost to sweep up the wood shavings and clean up the stain off the floor.

The idea of activity cost pool is to get as close of an estimate as possible for what it takes to create a product or provide a service. This is something financial accounting practices don’t always provide. It’s useful if you’re trying to decide the all-in cost of creating a product, or which product is actually making you money.

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