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Key Terms

  • Activity-Based Costing (ABC): Costing method that allocates overhead based on activities
  • Activity: Task or action that consumes resources
  • Cost Pool: Grouping of costs by activity
  • Cost Driver: Factor that causes or drives activity cost
  • Activity Rate: Cost per unit of cost driver
  • Traditional Costing: Costing using single overhead rate
  • Overcosting: Assigning too much cost to a product
  • Undercosting: Assigning too little cost to a product
  • Volume Bias: Tendency to overcost high-volume products
  • Resource Consumption: Amount of resources used by a product
  • Activity Consumption: Amount of activities used by a product