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Benefits of Activity-Based Budgeting

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Benefits of Activity-Based Budgeting

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  • December 5, 2006
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Along with the development of globalization, companies must have an efficient system to keep the competitive advantage. The broad application of new technology gives a basis to the advent of ABB. Nowadays, more and more companies start to use ABB in the budgeting process. Referring to ABB, companies do well in their budgeting period. This shows that ABB itself has many outstanding characters. In this article we will compare it with traditional budget method, so that it could give us a general survey about the characters and benefits ABB has.

What is Activity-Based Budgeting (ABB)

Definition of ABB

Brimson says ABB is a managing process that based on the activity level, in order to get lasting improvement on cost and operation (Brimson 1991). It presents a budget in terms of the cost of a company's products and services (NDMA 2006).

Background of ABB

ABB, evolved from ABC (Activity-Based Costing), is the "application of ABC and ABCM principles in a budgetary control setting" (Williamson 1996). ABB is based on products planning to produce and sales that haven't finished. It is activities that bring out costs and is products that create demands for activities. ABB allows us to get the activity needed for quantities of products and sales. We need to know the "historic data by adopting ABC" (learningnet), and with the data we could estimate the resources and costs to each activity.

How does ABB work

based on products, quantity

and combination of both

calculate the cost of activity according to the

planned products, quantity and combination

compare with the current

resource supply

decide the resource cost budget

according to the cost of activity

Benefits of ABB

Comparison between Traditional Budgeting Method and ABB

Budgeting is information that managerial persons need for decision-making and allocating the cost for each part of producing. So budgeting should offer an advanced material and give a panorama of what will...