Activity based budgeting is a budget system based on expected
Activity-based budgeting also known as ABB is an organized system in accounting management that researches records and evaluates the entire set of activities that pave the way towards increasing costs for the company. Any activity that takes place in the organization and incurs costs it is carefully scrutinized so that more efficiency is achieved in saving costs.
Unlike traditional budgeting ABB is far more rigorous as the former merely adjusts previous budgets to account for inflation. ABB is a great way for organizations to boost their profits as costs can be immensely controlled.
The three steps identified as the ABB process are:
• Identifying the cost drivers that are responsible for incurring expenses
• Determining the number related to each activity that forms the baseline for calculations
• Outline the cost per unit of every activity and multiply the result by the activity level