Activity-Based Budgeting (ABB)

Activity-Based Budgeting (ABB)
Activity-Based Budgeting concentrates on the costs incurred for the activities that produce goods or services.
Pros
Costing Accurate: As this model emphasizes activities, ABB helps better identify and allocate overhead costs.
Costs Align with Activities: It links every activity to costs such that business organizations may understand their cost drivers.
Increased Transparency: Managers gain better insight into the relationship between costs and activities.
Cons:
Complexity: The model can be difficult to implement in organizations with many different activities and departments.
Requires Detailed Information: Successful implementation of ABB requires detailed and accurate data, which can be time-consuming to gather.
Not Flexible: Once the activities are identified and budgets are set, making adjustments can be difficult.