Activity-Based Budgeting - ABB

AAA

DEFINITION of 'Activity-Based Budgeting - ABB'

A method of budgeting in which the activities that incur costs in every functional area of an organization are recorded and their relationships are defined and analyzed. Activities are then tied to strategic goals, after which the costs of the activities needed are used to create the budget.

Activity based budgeting stands in contrast to traditional, cost-based budgeting practices in which a prior period's budget is simply adjusted to account for inflation or revenue growth. As such, ABB provides opportunities to align activities with objectives, streamline costs and improve business practices.

INVESTOPEDIA EXPLAINS 'Activity-Based Budgeting - ABB'

By looking at the cost structure of an organization via the processes that are actually being performed, managers can more effectively analyze the profit potential of a company's products and services. Cost efficiencies can be found by comparing activities performed in different areas of the organization and consolidating or rerouting certain functions.

At its essence, activity-based budgeting begins by looking at results and the activities that created them, as opposed to cost-based budgeting, which often begins with raw input and material and works outward. ABB can also help firms create more accurate financial forecasts.

RELATED TERMS
  1. Activity Capacity

    The degree to which a particular action is expected to perform. ...
  2. Activity Cost Driver

    A factor that influences or contributes to the expense of certain ...
  3. Avoidable Cost

    An expense that will not be incurred if a particular activity ...
  4. Batch-Level Activities

    In managerial accounting, production costs that are incurred ...
  5. Zero-Based Budgeting - ZBB

    A method of budgeting in which all expenses must be justified ...
  6. Variable Cost

    A corporate expense that varies with production output. Variable ...
Related Articles
  1. Budgeting

    The Beauty Of Budgeting

  2. Budgeting

    How Budgeting Works For Companies

  3. Budgeting

    Which is a better measure for capital ...

  4. Top fund-raising strategies for nonprofit organizations
    Taxes

    Top Fund-Raising Strategies For Nonprofits

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center