This article deals with some of the terms used in Activity-based costing.
In an Activity-based costing system(ABC), the term allocation base is replaced by the term activity measure, and the term cost driver is also used.
The two types of activity measures are :
- Transaction driver – a simple count of the number of times that an activity occurs. This is the least accurate type of activity measure.
- Duration driver – measures the amount of time needed to perform an activity. This is more accurate than a transaction driver, but it takes more effort to record.
The following are the examples of activity cost pools and corresponding activity measures:
| Activity Cost Pool | Definition | Activity Measures | |
| 1 | Customer order | Assign all costs of resources that are consumed by taking and processing customer orders | Number of customer orders |
| 2 | Product Designs | Assign all costs of resources consumed by designing products | Number of product design |
| 3 | Order Size | Assign all costs of resources consumed as a consequence of the number of units product | Machine-hours |
| 4 | Customer Relations | Assign all costs associated with maintaining relations with customers | No of active customers |
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