Cost Pool
A grouping of individual costs that are allocated to cost objects using a single cost driver, typically used in activity-based costing systems.
Cost Pool
A grouping of individual costs that can be allocated together to cost objects using a single cost driver, typically used in activity-based costing systems to simplify the allocation process.
For instance, a manufacturing company might create a cost pool for all machine-related costs (depreciation, maintenance, power, etc.) totaling $500,000 and allocate these costs to products based on machine hours, rather than tracking and allocating each cost separately.
Cost pools gather related costs that share a common activity or cost driver, streamlining the allocation process while maintaining reasonable accuracy. In sophisticated costing systems, costs are first assigned to activity cost pools representing significant business processes, then allocated to products, services, or customers based on their consumption of those activities.