Homogeneous cost pool is a managerial accounting term for a group of costs that have the same cause and effect or benefits received relationship with the cost allocation base. The more homogeneous or similar the cost pools are the more costs can be attributed to the cost object.
In a nutshell :
- An Homogeneous cost pool is an aggregate of all the costs associated with performing a particular business task.
- A temporary account, an Homogeneous cost pool, includes fixed costs and variable costs and allows a business to estimate the cost of a specific task accurately.
- Homogeneous cost pools are used in activity-based costing, an accounting method that is commonly used in production and manufacturing.
- Homogeneous cost pools help to accurately assign costs, which is important in determining the profitability of products and making production decisions to improve profit margins.