Question

differences and similarities between activity-based budget and project-based budget

Answer 1

Similarities:

-- The activity-based budget and project-based budget both targets to bring efficiency in the activities of the company.

-- Both the systems are complex in nature. Activity-based budgeting system involves research and analysis of numerous factors; while the project based budget makes an assumption that all projects and timings are accurately known up to 15 months in advance which is difficult if the organisation is more complex

-- These can readily adapt to change if the managers alter the priorities based on variable market conditions/activities.

Differences:

-- The project budget refers to a budget plan that identifies the goals, resources, and schedule that allows an organisation to achieve those goals. The project-based budgets are inflexible while responding to unexpected changes within a project. On the other hand activity based budgeting refers to a method wherein the budgets are prepared by applying the Activity Based Costing after taking into consideration the overhead costs. Thus it assigns costs first to activities and afterwards applied to projects based on each projects usage of the resources.

-- The project-based budget takes into consideration the past year's income and expense while allocating the budgets to individual departments in the organisation. Activity Based Costing does not take into consideration the past year's budget in the formulation of the current year's budget