The costs associated with each activity are gathered together in cost pools. Cost pools are similar in principle to cost centres in traditional systems. Costs are pooled, or collected, on the basis of the activity that drives the costs, regardless of conventional departmental boundaries. All costs relating to the activity will be pooled together, cost pools could include handling customer complaints or payment processing.

The key idea behind ABC is to focus attention on what factors cause or drive costs. These factors are known as cost drivers. A cost driver is the event and factors which cause an activity to occur and to consume resources. Examples of cost drivers could be the number of customer complaints handled or the number of customer payments processed.

Part b) Cost driver rates