An activity cost pool is a group of costs related to a specific business activity.

Simple Meaning:

It is a collection of all costs connected to one particular activity.

Example:

If “Machine Setup” is an activity, its cost pool may include:

Technician salaries

Setup tools cost

Electricity used during setup

All these costs are combined into one activity cost pool.

Purpose:

Activity cost pools are used in Activity-Based Costing (ABC) to calculate accurate product costs by assigning costs based on activities.

In short, an activity cost pool gathers all costs of one activity in one place for proper cost allocation.