Chapter 3

Activity Cost pool

"bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system.

Benchmarking

A systematic approach to identifying the activities with the greatest room for improvement. It is based on comparing the performance in an organization with the performance of other, similar organizations known for their outstanding performance.

Activity-based costing

A two-stage costing method in which overhead costs are assigned to products on the basis of the activities they require.

Facility-level activities

Activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made.

Batch-level activities

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch. The amount of resources consumed depends on the number of batches run rather than on the number of units in the batch.

Unit level Activities

Activities that arise as a result of the total volume of goods and services that are produced, and that are performed each time a unit is produced.

Product-level activities

Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run.

Activity measure

An allocation base in an activity-based costing system; ideally, a measure of whatever causes the costs in an activity cost pool.

Activity

An event that causes the consumption of overhead resources.

Activity rate

An overhead rate in activity-based costing. Each activity cost pool has its own activity rate which is used to assign overhead to products and services. (

Activity-based management

management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects.