Activity-based costing allocates overhead to multiple cost pools and assigns the cost pools to products using cost drivers.

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Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. ABC allocates overhead to multiple cost pools based on activities and their cost drivers, which are the factors that cause or influence the incurrence of costs. By tracing costs more precisely to activities and products, ABC provides more accurate and relevant information for decision-making than traditional costing methods that use direct labor or machine hours as the basis for allocation.

Activity-Based Costing Allocates Overhead to Multiple Cost Pools and Assigns