Types of budget:
Ø
Zero Based Budget
Ø
Rolling budget
Activity Based Management: ABM is style of managing business
applying the principles of Activity Based Costing. ABM focuses on identifying
activities (value adding and non-value adding), measure the cost and
performance of activities. It facilitates
strategic decision on issues like product mix and design by providing clear
cost picture (will not reduce costs, it will only help you understand costs
better to know what to correct). It focuses on continuous improvement.
Synopsis from the
article:
Organisations are moving from managing vertically to managing
horizontally. It is a move from a function orientation to a process orientation.
Total quality management (TQM), just-in-time (JIT), benchmarking and business
process reengineering (BPR) are all examples of horizontal management
improvement initiatives. These initiatives are designed to improve an
organisation's work processes and activities to effectively and efficiently meet
or exceed changing customer requirements.
Ø
Activity Based Budgeting: The activity-based
approach to budgeting is a more sophisticated version of traditional absorption
costing. Activity-based costing (ABC) uses cost drivers to arrive at cost of
the product. ABB uses the costs drivers
identified by ABC to estimate firm’s future demand of resources.
In simple terms, it involves the following
stages:
o
Determine the key budget factor for the next
budget period. E.g. Production/Sales volumes
o
Estimate/determine the demand of resource for
support activities required for the budget from cost drivers.
o
Set the budget for the support activities.
ABB advantage: better cost allocation, identification of
cost driver, efficient resource management, total quality management (TQM)
ABB disadvantage: Cost and complexity, Problem identifying
cost driver, requires considerable amount of time, may not be suitable for some
organisation.
CIMA Article: Management Accounting Performance Evaluation
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