Activity Based Budgeting - Budgetary Control, Cost Accounting Video Lecture | Cost Accounting - B Com

you
activity-based budgeting follows the
practice of activity-based costing
before explaining activity-based
budgeting let's have a quick run-through
of activity-based costing x'
activity-based costing is used as an
alternative to absorption costing its
aim is to calculate the full production
cost of a unit there are five steps of
activity-based costing group production
overheads interactivities called cost
pools activities are pooled according to
how they are driven identify cause
drivers for each activity this is what
actually causes the activity costs to be
incurred calculate the overhead
absorption rate for each activity absorb
the activity cost into the product and
calculate the full production cost and
profit or loss
the advantages of activity-based costing
is that it provides a more accurate
course per unit this can lead to better
decision making and performance
management it provides an insight into
what activities are driving cost which
can result in better cost control it can
assist in repricing or with the
elimination of unprofitable products it
can assist in identifying eliminating
activities which do not add value to the
product or service it recognizes that
not all overhead costs are related to
production and sales volumes it can be
applied to all overhead costs not just
the overhead cost of production and
activity-based costing can be used just
as easily with service costings as with
product costing the disadvantages of
activity-based costing czar the time and
cost involved in collecting and
analyzing the data required for
activity-based costing x' it is of
little benefit if overheads are
primarily volume based or form only a
small proportion of costs the choice of
cost drivers may be inappropriate and
it's impossible to allocate all
overheads to specific activities
activity-based budgeting uses the
principles of activity-based costing x'
to assess demand on resources when
setting budgets estimate production and
sales volumes estimate activities
required to fulfill these volumes
determine resources required to perform
activities for each resource to
determine quantity that is required in
order to meet demand and adjust capacity
of resources to match projected supply
the advantages of activity-based
budgeting is that it draws attention to
the overhead activities and provides
information for control of activities
and costs the disadvantages are that it
requires a lot of time and effort to
produce an activity-based budget it is
of little benefit if overheads are
primarily volume-based or form only a
small proportion of costs the choice of
course drivers may be inappropriate
activities and resource levels may be
difficult to determine and it's
impossible to allocate all overheads to
specific activities
you