Which aspect is crucial when assessing the effectiveness of an ABC system?

When assessing the effectiveness of an Activity-Based Costing (ABC) system, evaluating the interrelation between various cost pools is crucial. An ABC system aims to allocate overhead costs more accurately to products or services based on the activities that generate those costs. This requires a comprehensive understanding of how different cost pools interact and contribute to overall expenses.

By examining the interrelation among cost pools, an organization can identify which activities consume resources and create costs, allowing for more informed decision-making. This insight can lead to better pricing strategies, improved operational efficiency, and greater profitability. An effective ABC system should integrate this analysis to ensure that cost allocation reflects the true resource consumption of each activity, rather than relying on broad averages or simplistic methods.

The other options do not support the fundamental purpose of an ABC system. Minimizing costs in one production area only could lead to suboptimal decisions, as it might neglect the broader implications on other areas. Focusing solely on sales data overlooks the cost structure and does not capture the essential activities driving costs. Disregarding indirect costs fails to recognize a significant aspect of overall expenses, which is critical for an accurate understanding of profitability. Thus, evaluating the interrelation between various cost pools embodies the essence of Activity-Based Costing and ensures that the