Activity-based budgeting

Activity-based budgeting

Description/Paper Instructions

Activity-based budgeting

Activity-based budgeting (ABB) is a budgeting approach that focuses on identifying and allocating resources based on the activities performed within an organization. It is a more dynamic and detailed method compared to traditional budgeting techniques, as it provides a comprehensive understanding of the costs associated with each activity. ABB allows organizations to allocate resources more efficiently, prioritize activities, and improve overall performance.

The key concept behind activity-based budgeting is that activities consume resources, and by analyzing these activities, organizations can gain insights into the costs incurred. ABB involves breaking down the budgeting process into various activities and assigning costs to each activity. This approach enables organizations to understand the cost drivers and determine the resources required to perform specific activities effectively.

To implement ABB, organizations typically follow several steps. The first step involves identifying and defining activities that contribute to the overall organizational goals. These activities can be categorized as primary, secondary, or support activities. Primary activities are directly involved in producing goods or delivering services, while secondary activities support the primary ones. Support activities are non-value-added activities necessary for the functioning of the organization but not directly involved in the production process.

Once activities are identified, the next step is to determine the cost drivers for each activity. Cost drivers are factors that cause the costs of an activity to change. For example, in a manufacturing setting, the number of units produced or machine hours may be the cost drivers for an activity. By identifying the cost drivers, organizations can link costs to specific activities more accurately.

After identifying the cost drivers, the next step is to assign costs to each activity. This involves analyzing historical data, conducting surveys, and using various allocation methods to determine the costs associated with each activity. This process helps organizations understand the resources required for each activity and allocate budgets accordingly.

The fourth step in ABB is to develop activity-based budgets. This involves estimating the resource requirements for each activity and allocating budgets based on those estimates. The budgets are developed by considering the cost drivers, historical data, and other relevant factors. By aligning budgets with activities, organizations can ensure that resources are allocated to areas that create the most value and support the achievement of organizational goals.

Once the activity-based budgets are developed, the next step is to monitor and control the actual performance against the budgeted amounts. This involves tracking the progress of each activity, comparing actual costs with budgeted costs, and analyzing any variances. By monitoring performance, organizations can identify areas of inefficiency or opportunities for improvement and take corrective actions as necessary.

The benefits of activity-based budgeting are numerous. Firstly, ABB provides a more accurate understanding of costs by linking them directly to activities. This allows organizations to make informed decisions about resource allocation and prioritize activities based on their impact on organizational goals. ABB also enhances cost control and cost management by providing a detailed breakdown of costs and enabling better cost analysis.

Moreover, ABB promotes accountability and transparency within an organization. By assigning costs to activities, it becomes easier to track and evaluate the performance of each activity and the individuals responsible for them. This fosters a culture of accountability and helps identify areas where improvements can be made.

Furthermore, ABB facilitates effective resource allocation by identifying areas of waste or inefficiency. It helps organizations eliminate non-value-added activities and allocate resources to activities that drive value creation. This can lead to improved productivity, reduced costs, and enhanced overall performance.

In conclusion, activity-based budgeting is a comprehensive approach that helps organizations understand the costs associated with different activities and allocate resources accordingly. By breaking down the budgeting process into activities and cost drivers, organizations can gain valuable insights into their operations and make informed decisions. ABB promotes efficiency, accountability, and cost control, ultimately leading to improved performance and competitive advantage.

Activity-based budgeting

RUBRIC QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points:  Student failed to submit the final paper. 20 points out of 50:  The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50:  The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately.  Elements of the required response may also be lacking. 40 points out of 50:  The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples.  The answer is complete. 50 points:  The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples.  No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points:  Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points:  Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points:  References to scholarly sources are occasionally given; many statements seem unsubstantiated.  Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points:  Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented.  APA 6th Edition is used with only a few minor errors.  There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points:  Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented.  APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points:  Student failed to submit the final paper. 5 points out of 20:  The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors  10 points out 20:  The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20:  The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points:  The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points:  Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements.  The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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