Activity-Based Budgeting: A Profit Management Analysis Tool

From the Paper:

"Unlike traditional budgeting systems, activity-based budgeting (ABB) more accurately assigns overhead cost consumption to the products and services that consume them. ABB is a process management tool that quantifies the cost of providing a service or product. This is measured in terms of resources that add value for customers and those that are diverted to non-valued added overhead functions (activities). Simply put, activity-based budgeting reflects the organization's internal processing cost (cost-to-serve). This is done by examining all of an organization's activities, and not just functional operations, that help determine the true costs of providing services and to quantify recommendations such as process re-engineering, product mixing, or product redesign. Even though the concept of ABB and activity-based management (ABM) is vastly rooted in the manufacturing industry, this new age accounting approach provides valuable data about the cost distribution in any organization. The service industry " the largest and fastest growing area in the US economy " has adapted this methodology for providing business intelligence that allows true understanding and analysis of customer contribution to overall profitability."

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