Benefits of Activity-Based Budgeting
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 happen in finance.
Compared with
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 happen in finance.
Compared with
Bibliography: Bailey, J. (1991), 'Implementation of ABC systems by UK companies ', Management Accounting (CIMA) (February) Brimson, J.A., Fraser R.(1991), 'The Key Features of ABB ', Management Accounting (London) Colin Drury (1998), 'Activity-Based Costing ', Cost: An Introduction (International Thomson Publishing), 293-312 C Duncan Williamson (1996), 'Activity-based budgeting ', Cost & Management Accounting (Prentice Hall Europe), 178, 197-202 and 488 Dong Ying (2006), "To Complete the Budgeting System" (17 July 2006), www.cma.e521.com/article.php?articleid=1325 Pan Fei (2006), 'Research on Activity-Based Budgeting ', (26 May 2006), www.chengben.net/Article/HTML/600.html Jiang Chaohui (2006), 'Research on the Intra-company Budgeting Methods ', (30 Aug