Question

COLLAPSE

I was a part of the budgeting process in my organization, my organization uses the activity-based approach method in budgeting, The activity-based approach is a type of output/input method, but it reduces distortions in the transformation through emphasis placed on the expected costs of planned activities that will be consumed by the cost objective. The way it works is overhead costs are budgeted based on anticipated consumption of activities. The consumption of the activity cost drivers is determined. The budgeted activity cost is based on units of activity and a related cost per unit activity cost driver.

My role and responsibility in with budgeting in my organization is to create a list of income expenses and create a spreadsheet in excel with it

the estimate is the biggest challenge with budgeting because it may change for a thousand reason.

An inaccuracy in the estimate is the biggest challenge in the budgeting process ( i need a reply to this discussion )

Answer 1

Budgeting always involves expectations and assumptions, there may be a difference between actuals and budgets.

Cost which is estimated for future period is called budgeting,

Generally budgeting is done based on past experiences and future anticipations.

Activity based budgeting :

Activity-based budgets (ABB) are more likely to be utilized by newer companies without historical budgeting information on which to rely. Also, ABBs are more useful for companies undergoing material changes, such as those with new subsidiaries, significant customers, business locations, or products. Because traditional budgeting processes simply adjust a previous year's budgeted amounts, established firms with minimal change are more likely to use traditional growth budgeting approaches. A flat rate is typically applied to the data from the previous year to reflect business growth and inflation. The activity-based budgeting (ABB) process is broken into a three-step process,

1.by determining number of units

2.by determining cost per unit

Inaccuracy :

Though we extract the data from reliable source ,there may be chance that budget estimates may go wrong due to internal inefficiencies like,

a. Abnormal waste in production

b. Wage paid in ideal time

c. Unexpected events which leads to funds outflow

To conclude that, budget always includes past analysis and future anticipation either cost wise or income wise,

To be more responsible responsible to take reliable information into consideration while preparing the budgets. Budgets cant be prepared in isolated manner.