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Activity based budgeting and beyond budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Activity based budgeting and beyond budgeting

  • This topic has 5 replies, 2 voices, and was last updated 7 months ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • November 10, 2021 at 9:44 am #640345
    Syed Ahsan Ali
    • Topics: 107
    • Replies: 66
    • ☆☆

    What is activity-based budgeting and beyond budgeting?

    I have problem understanding how they work and how they are applied.

    Can we be asked about them in the exam as a theory?

    November 10, 2021 at 4:27 pm #640372
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    They are both explained in my free lectures on budgeting (and they can only be asked in discursive questions, not as calculation questions).

    November 10, 2021 at 6:44 pm #640387
    Syed Ahsan Ali
    • Topics: 107
    • Replies: 66
    • ☆☆

    Traditionally we measure the performance of the managers based on budgets prepared at the beginning of the period.

    However, with beyond budgeting approach measures the performance of the managers based on comparing the performance of the managers with other similar companies (or similar divisions of the same company). The reason is that companies prefer this approach that measures the performance of the managers to compete with industry standards that help meet the customer’s perspective.

    I have a question here that manager’s performance are compared with similar companies manager’s performance or similar companies’ budgets?

    Please correct me what I have written above and I could not find activity-based budget in your lectures. Please do state what it is and why we should prefer it over other budgeting.

    November 11, 2021 at 7:31 am #640404
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    It should be compared with the actual performance of similar companies managers, not with their budgets.

    Activity based budgeting applied ABC techniques and budgets for each activity.

    November 11, 2021 at 8:52 am #640410
    Syed Ahsan Ali
    • Topics: 107
    • Replies: 66
    • ☆☆

    You didn’t say what I said above about beyond budgeting was correct or not?

    You mean to say that beyond budgeting is an advanced technique without making any budget at all rather the comparison is with similar companies manager’s performance so we can say that the budget is actually the similar companies manager’s performance as a base to perform to this level. But how do we obtain similar companies manager’s performance so that we can compare our manager’s performance with it?

    Activity based budgeting is a budgeting method in which budgets are prepared using Activity Based Costing after considering the overhead costs. In simple words, activity based budgeting is management accounting tool which does not consider the past year’s budget to arrive at current year’s budget. Instead, the activities that incur the cost are deeply analyzed and researched. Based on the outcome of the study, the resources are allocated to an activity.

    It is concerned with the allocation of fixed costs (ie. overheads) which focuses on understanding how overheads are consumed by the production process.

    Is that all correct? Thanks for your time I appreciate your help 🙂 🙂

    November 11, 2021 at 3:46 pm #640429
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    What you wrote was correct.

    As I do say in my lectures it is not always obviously possible to find out the performance of managers in similar companies. Certainly if we have similar divisions within the same company we can do it. As far as other companies are concerned it can benefit both companies if they agree to share certain information about performance.

    What you have written about activity based costing is fine.

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