Methodology:ActivityBasedBudgetingOverviewActivityBasedBudgetingistheapplicationofactivityanalysistothebudgetandcontrolprocesswithinorganizations.ABBisamethodofrationallyapplyingthecorrectamountofresourcestotheappropriateplaceattherighttime.Specifically,ABBisamethodofdeterminingresourcesrequiredtoperformadesiredlevel(rate)ofanactivity,basedonaforecastofthefrequencyorintensityofdemandplacedontheactivity.ABBmaybeimplementedtodisplacetraditionalbudgetingapproachesinsophisticatedActivityBasedCostingenvironments.Or,ABBmaybebeusedtocomplimenttraditionalapproachestogeneralledgerline-itembudgeting.Objectives:-Planandallocateresourcesacrosstheorganization-TrackandevaluateoperatingandfinancialperformanceQuestions1.Arethebudget“owners”intheorganizationprocessownersorfunctionowners?2.Whocreatesthebudgetassumptions,andhowaretheydeveloped?3.Isthebudgetingmethodcurrentlyusedwithintheorganizationatop-down,orbottom-upconstruction?4.Howisthecurrentbudgetcommunicatedtotheorganization?5.Howisthecurrentbudgetingapproachlinkedtothestrategicdirectionoftheorganization?Hints-AssessacceptanceofABC/ABMprincipleswithinanorganization.OfABC/ABM/ABB,ABBcanbethemostdifficultforanorganizationtoembrace.ABBrequiresthecommitmentofseniormanagementtoallocateresourcesbasedonactivitiesratherthanwhatthey“wantindividualgeneralledgerlinestolooklike.”Thisistypicallyanevengreaterstepthanmakingoperatingdecisionsbasedonactivityanalysis.Methodology:ActivityBasedBudgeting1-AssessappropriatenessofABCmodel,includingareviewofactivities,resourcesdrivers,activitydrivers,andcostdrivers.ABBusesanABCmodelasaframeworktotranslatelevelsofactivitiestoresourcesrequired.Thus,isitessentialthattheABCmodelberationallyconstructed.Issues-OrganizationsmaywanttouseABBatadivisionalorbusinessunitlevel,whilethedivisionorbusinessunitisaccountableforageneralledgerline-itembudgetratherthananactivitybudget.Accountabilityforthebudgetshouldbealignedwiththemethodusedtodevelopthebudget.-Onceanactivitybasedbudgetiscompletedatadivisionalorbusinessunitlevel,corporateheadquartersmayrequirethebudgetbereportedinageneralledgerline-itemformat.Thisrequiresthere-statementoftheactivitybudgetintoageneralledgerline-itembudget.-Resourcesmaybeallocatedtodivisionsorbusinessunits(whouseABB)basedondesiredgeneralledgerresultsratherthanresourcesdeterminedbyratesofactivities.Themethodusetoallocateresourceshouldbeconsistentthroughouttheorganization.Methodology:ActivityBasedBudgeting2Phase1:DemandForecastingOverviewTheobjectiveofthisphaseistoforecasttheintensityofdemandtobeplacedonactivitiesduringtheplanninghorizon.Theobjectivesareto:-Identifysourcesofdemandforproducts/services-Determineforecasteddemandforproducts/services-Relatedemandforproducts/servicesintodemandforactivitiesQuestions1.Areallcostobjectsproductsorservices?2.Whatproductsandservicesareofferedandwhoarethecustomers?3.Aretheconsumersoftheseproductsandservicesinternal,external,orboth?4.Doonlyafewcustomersconsumethemajorityofaproductofservice?5.Isdemandseasonal?Hints-Products/servicesmaybeconsumedbyinternalcustomers(e.g.manufacturingisacustomeroftheproductpayrollcheck)aswellasexternalcustomers.-Service(Product)LevelAgreements(SLA’s)areausefulinstrumenttostructuretherelationshipbetweenthesupplierandconsumerofproductsorservices.SLA’softencontainservicelevelandservicequalitystandardsaswellastake-or-payprovis...
