The correct answer is: B. One or two cost pools
Activity-based costing (ABC) is a costing methodology that identifies and assigns indirect costs to cost objects based on the activities that drive those costs. ABC is a more accurate way of allocating indirect costs than traditional costing methods, such as job costing or process costing.
In ABC, indirect costs are allocated to cost objects using cost pools. A cost pool is a group of costs that are incurred in the same activity or process. Indirect costs are allocated to cost objects using a cost driver. A cost driver is a factor that causes a cost to be incurred.
For example, the cost of electricity in a factory might be allocated to cost objects using the number of machine hours. The cost of maintenance in a factory might be allocated to cost objects using the number of machine hours.
ABC can be used to allocate indirect costs to cost objects more accurately than traditional costing methods. This can lead to more accurate product costing and pricing. ABC can also be used to identify areas where costs can be reduced.
Option A is incorrect because indirect costs are always allocated to cost pools. Option C is incorrect because sustained tracing is not a method of allocating indirect costs. Option D is incorrect because support tracing is not a method of allocating indirect costs.