ICAEW BIP · Chapter 6 · Question 7 of 11
Activity-based budgeting (ABB) differs from traditional budgeting mainly because it:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) budgets overhead costs by reference to the activities that drive them and the expected level of each cost driver
Explanation
ABB applies ABC principles to budgeting. Expected demand for each activity (such as the number of set-ups or purchase orders) is estimated, and the resources and costs needed are budgeted from it. This gives managers a better understanding of what causes overhead costs and helps them control those costs.
More Budgeting: purposes and approaches MCQs
- Q9Which document sets out the instructions, procedures, timetable and responsibilities for preparing the budget?
- Q10A manager compares forecast results for the rest of the year with the budget and takes action now to correct an expected shortfall before…
- Q11In which situation is an imposed (top-down) budget most likely to be appropriate?
- Q1Which of the following is NOT normally a purpose of budgeting?
- Q2A company can sell all it produces, but the supply of a specialist component is restricted. In this situation, what is the principal…