What is the normal effect on the numbers of cost pools and cost assignment bases when an activity-based cost (ABC) system replaces a traditional cost system

Cost Pools- increase, Cost Assignment Bases- increase

Explanation:

In recent years and with considerable acceptance, a new method for the definition of the costs of products and services has been taken into account, which is based on the quantification of the productive, operational and administrative activities necessary in the preparation and sale of these, representing therefore an alternative applicable to operations not only productive but of an administrative or supportive nature.

Under this new methodology, the allocation bases used in fixing indirect costs and some administrative expenses are units of measure determined by the most significant operational activities carried out during the production process, such as number of assembly of parts, hours of preparation of input; In the case of administrative activities, they can be defined by the number of employees served, by the area occupied, by the time of dedication, by the number of telephone lines available.

The allocation bases used in the Activity-Based Costing methodology, for the distribution of the costs and expenses of the processes of support for productive and operational activities, are called cost-generating or DRIVER.

In addition, one of the steps to follow to achieve ABC costing form groups of homogeneous costs (costs of each group, referred to an activity), valuing them, the activities, separately.

This means that when the homogeneous costs increase, the allocation bases also increase.