Use of activity based costing (ABC) to calculate total cost of a product: terminology including cost pool, cost driver, attribution
Activity based costing (ABC) groups indirect costs by the activity that causes them. It then charges each product based on how much of that activity the product actually uses.
Formula
Cost Driver Rate = Total Cost Pool ÷ Total Number of Cost Drivers
Real World
Amazon's fulfilment centres use ABC to charge warehouse picking costs per order line rather than per unit, so a 10-item order absorbs more picking cost than a single-item order.
Exam Focus
Define cost pool, cost driver, and attribution separately — examiners award one mark per correct definition, so never merge them.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
How well did you know this?