Managerial Accounting: ABB and Traditional Budgeting Comparison

This report delves into the realm of managerial accounting, focusing on the comparison between Activity-Based Budgeting (ABB) and traditional budgeting methods. It begins with an executive summary, highlighting the importance of accounting and financial aspects in business success. The report then introduces ABB, detailing its features and contrasting it with traditional budgeting. A key aspect is the analysis of CSR Limited, an Australian building products company, to determine the suitability of ABB within its operations. The study suggests that ABB, with its focus on activity-based costs, offers a more transparent and effective budgeting process compared to traditional methods. The report concludes that adopting ABB could enhance CSR Limited's revenue generation in the long run, providing a more accurate and efficient approach to financial planning and resource allocation. The report also explores the benefits of ABB such as accurate financial budgets, effective use of resources, reduction of wasteful spending, and alignment of strategic plans.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary:
Various aspects help in ascertaining the success of the business organizations; and the
accounting and financial aspects are considered as crucial among them. It is the responsibility of
the managements of the business organizations to continue their accounting and financial
reporting related operations in the most perfect manner. This study shows the comparison
between ABB and traditional budgeting and it is found that the former is a better choice in the
current state of competition prevailing in the market. Finally, the last part of the study focuses on
discussing the suitability of this process in CSR limited and it is found that incorporation of this
process would enable the firm in earning more revenue in the long run.

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Table of Contents
Introduction......................................................................................................................................3
Description of Firm’s Client............................................................................................................4
Activity Based Budgeting and Its Features.....................................................................................5
Activity Based Budgeting (ABB)................................................................................................5
Features of ABB..........................................................................................................................6
Difference between activity based budgeting and traditional budgeting:.......................................8
Suitability of activity based budgeting in CSR Limited:...............................................................12
Conclusion:....................................................................................................................................13
References:....................................................................................................................................14

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Introduction
There are different aspects that determine the success of the business organizations; and
the accounting and financial aspects are considered as crucial among them. It is the responsibility
of the managements of the business organizations to continue their accounting and financial
reporting related operations in the most perfect manner. In this context, it needs to be mentioned
that there is a relation between the accounting operations of the companies with the aspect of
Managerial Accounting (Hilton and Platt 2013). Managerial accounting or management
accounting is considered as different accounting techniques that the managements of the
companies use for the success of the business organizations. In a more elaborated manner, the
tools and techniques of managerial accounting provide the managers with the opportunity to
manage as well as use the accounting information of the companies so that they can get major
assistance at the time of organizational decision-making (Noreen, Brewer and Garrison 2014).
Thus, it can be said that managerial accounting has major positive influence on the
performance f the companies. Now, it has been mentioned earlier that managerial accounting
provides the organizational managers with different techniques that can be used in using the
accounting information for better decision-making. One of such crucial managerial accounting
technique is Activity-Based Budgeting, commonly known as ABB. ABB can be regarded as a
method of budgeting process for the managements of the companies in order to bring greater
transparency into the processes of budgeting. One major aspect that differentiates ABB with the
traditional budgeting system is that it involves in the direct allocation of revenues from
institutional and research activities to the units in the most responsible manner (Weygandt,
Kimmel and Kieso 2015). The main objective of this report can be seen in the analysis and

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evaluation of different dimensions of ABB so that its suitability can be determined in a major
Australian company, CSR Limited.
Description of Firm’s Client
CSR Limited is one of the major companies in Australian that has been providing
building products for the purpose of both commercial and residential solutions. It needs to be
mentioned in this context that CSR Limited has its business operations spread in the regions of
Australia and New Zealand (Csr.com.au 2018). As the company has spread its operations in the
regions of these counters, a huge customer base can be seen in the company and CSR Limited
has more than 12,000 customers across the regions of Australian and New Zealand. CSR Limited
has different types of clients or customers as the company provides building material solutions to
different aspects (Csr.com.au 2018). They are discussed below.
CSR Limited provides building solution to the residents of contemporary homes and for
this reason, the residents of contemporary homes or the detached homes are one major type of
customer of the company. It needs to be mentioned that the company provides these customers
with build solutions for performance and aesthetics for the purpose of modern living. The
company provides them with customized solution in order to cater to their needs. After that, the
residents of apartments and multi-residential buildings are another major type of client of CSR
Limited. These clients of CSR Limited are the people of the urban areas of Australia. CSR
Limited has to cater to their need for apartment building due to the huge growth in the population
(Csr.com.au 2018).
In addition, CSR Limited provides building solutions for the commercial as well as retail
purposes. For this reason, the owners of the commercial as well as retail businesses are another

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major type of customer of the company. Hence, new as well as old business owners are the
clients of the company as they always look for spaces for commercial and retail businesses. It
needs to be mentioned that CSR Limited provides building solution to the civil authority for the
smooth transport facilities like interruption free transport facilities for trucks and trains. For this
reason, the civil authority or the government is another major client of the company (Csr.com.au
2018).
It can also be seen that CSR Limited involves in developing health, education and public
buildings. Thus, the major clients of the company from these sectors are different healthcares
like hospitals, nursing homes and others, schools, colleges, operas, shopping malls, stadiums and
others. Lastly, the owners of offsite and prefabricated buildings are another type of clients of
CSR Limited. The owners of these buildings can be normal people, businessmen, professionals
and others. Thus, the above discussion indicates towards the fact that CSR Limited has been able
in serving a huge and diversified client base with their unique and quality building solutions
(Csr.com.au 2018).
Activity Based Budgeting and Its Features
As per the earlier discussion, there are some major differences between ABB and the
traditional budgeting system. It needs to be mentioned that ABB has some unique features that
differentiate it with the traditional budgeting system. The following discussion provides the
description of ABB along with its key features.
Activity Based Budgeting (ABB)
ABB can be defined as a planning system that associates various organizational costs
with the activities and budgeted expenditures with the aim to compile them on the basis of the of

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the expected activity level. For this reason, difference of ABB can be seen with the traditional
budgeting system that involves in the adjustment of existing cost levels for inflation and major
changes in revenue. Thus, the description of ABB can be provided as a budgeting technique that
is based on activity framework with the use of cost driver data in the setting of budget and
process for variance feedback. It implies that the use of cost drivers can be seen in ABB in the
process of deriving budgets. It can be observed from the name of ABB that the main focus area
of ABB is the cost activities rather than cost functions (Mohammadipour 2014).
The presence of three main stages can be seen in the process of ABB. The first process
involves in the identification of the major cost activities of the businesses along with their cost
drivers. The second stage in ABB involves in forecasting the number of units of the cost drivers
and it is done for the required level of cost activity. The third or last stage in the process of ABB
is the calculation of the rate of cost drivers. It is done based on the cost per unit of the cost
activities. In addition, it needs to be mentioned that like activity-based costing, ABB helps in
drawing attention towards the overhead activities along with their cost associated. ABB signifies
that the managers can control the activity costs with the help of controlling the activity volume in
the organizations (Pazarceviren, Akcin and Ozsuer 2015).
Features of ABB
The presence of some specific features can be seen in ABB and these features
differentiate ABB from the traditional budgeting system. These features are discussed below:
I. More realistic in nature is one major feature of ABB. In the organizations, different
processes of ABB assist the managers in looking inward at different activities as well as

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costs as it does not only depend on the line items for the budget (Reka, Stefan and Daniel
2014).
II. Another major feature of ABB is the development of more accurate financial budgets for
the companies as compared to the traditional costing system. it is possible for ABB to
provide the managers with more accurate as well as flawless budget as it considers all the
cost drivers along with cost activities (Hoozée and Hansen 2017).
III. Another major feature of ABB is that it helps the organizations in making the most
effective use of the resources due to the fact that ABB provides the companies with the
accurate budget for the specific accounting period (Pazarceviren and Celayir 2014).
IV. One major feature of ABB is that it helps the organizational managers in the reduction of
wasteful spending with the help of analyzing each cost activity along with its contribution
towards the success of the organization. It also indicates that ABB helps in the
identification of the costing activities that do not contribute towards the organizational
success so that they can be eliminated (Hoozée and Hansen 2017).
V. Another major feature of ABB is the change in the process of the counting of
organizational costs. ABB involves in the counting of costs on the basis of costing
activities along with the cost drivers that assists in providing more details of the costs
(Hope and Fraser 2013).
VI. Another major feature of ABB is that it provides the organizational managers with the
opportunity to make alignment of the organizational strategic plan with the budgeting
system. In the presence of a clear and accurate budget, managers become able in
achieving the strategic objective in a more accurate manner (Hoozée and Hansen 2017).

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VII. One major feature of ABB is that it provides the organizational managers with more
flexibility in the process of the reallocation of funds compares to the traditional budgeting
system (Bogsnes 2016).
VIII. As ABB can be aligned with the organizational strategic plan, another major feature of
ABB can be found in the process to set performance targets for the higher level
management and other employees (Hoozée and Hansen 2017).
Difference between activity based budgeting and traditional budgeting:
Activity based budgeting (ABB) is the process of budgeting constructed for bestowing higher
level of clarity into the procedure of budgeting of a firm. The fundamental structure of activity
based budgeting shows that the revenue produced from operating instructions and research based
functionalities, is to be assigned to that particular unit which is responsible for the activity.
The distinctive differences between activity based budgeting and traditional budgeting, is
discussed below:
1. Tools for budgeting balance:
Generally, in the traditional process of budgeting, a firm would prefer to utilise the data
that has been recorded over a period of twelve months and financial documents involving the
activity plan. Thus, in order to prepare a new budget for a period, it could be done by either
rising or reducing the by adjusting the cost for making forecasts or to satisfy other needs of the
firm (Menzies et al. 2018). This enables the firm to hardly fulfil the balance in budgeting by
taking necessary steps related to product, services and resource capabilities.

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On the other hand, in case of activity based budgeting, the firm could accomplish running
budget balance before preparing financial budget by focusing on the size of product or services,
current resource capability of the firm, the resource and activity driver rate and so on.
2. Allotment on indirect costs:
The traditional budgeting process brings volatility in the cost related to the working hours
of the labourers. It results from alternative options related to different types of factors instead of
just allotments. It is would be unrealistic if the firm only takes into account the history of costs
related to the cost drivers only.
However, ABB tries to find out the cost drivers by following the basic steps of
accounting in order to administer the indirect costs. This would help the firm in reducing the
range of the allotments regarding indirect costs and analysis of the increase in the criteria related
to the allotments (Cicchetti et al. 2016).
3. Merchandise pricing:
In the traditional process of budgeting the costs related to the production of expensive
finished products get overestimated, moreover, this results in the undervaluation of the earnings
and vice versa; when the firm is functioning under a contract.
In case of ABB the individuals responsible for proper functioning of different units of the
production process would be able cut down the extra costs, so that the earnings of the firm would
increase. If the monetary value of the costs get reduced and profit level of the products get
increased, then the clients could agree with this decision, then the firm would be able to produce

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in a suitable ratio and take of the labour hours related to the production of the merchandised
products (Walling et al. 2016).
4. Resource consumption:
In the process of traditional budgeting, the budget procedure involves cost of average
build up of a firm. This process of budgeting includes direct costs related to staff, labour, factory
overhead and periodic expenses. However, this process fails to highlight all the resource
consumption points (Rosas et al. 2018).
On the other hand, ABB is the process that involves a clear analysis of all the activities,
resource consumption points and estimations could be properly carried out. This procedure helps
the firm in assigning the required resources to the suitable units and functionalities are crystal
clear, that diminishes the occurrence of mistakes.
5. Organisational approach:
The traditional budgeting process involves a straight forward organisational approach.
However, ABB allows the firm to take a step by step or hierarchical approach which diminishes
the gap between the different units functioning within the firm. It also helps in proper utilisation
of value concentric for the firm (Ohemeng 2016).
6. Analysis of budgetary indicators:
The traditional budgeting process helps in analysing the budgetary indicators elated to the
organisational approach.
Where as, ABB would be able to organise the budgetary indicators related to the activity
of individual units based on the features of their respective activities and also the responsibility

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that requires to be carried out by each unit. Thus, that limited resources could be utilised
diplomatically (Martin et al. 2014).
7. Fixed and variable costs:
The acute competition prevailing in the market makes the firm to focus on the variable
costs. In the process of traditional budgeting the costs get segregated into fixed costs and variable
costs respectively. The firm needs to organise the accounts related to variable costs and take care
of the unyielding fixed costs.
However, the process of ABB puts emphasis on the long term method of tallying. It
points out that major sections of the costs are variable and this process tries to analyse the forces
which would make all the overhead costs to change over time (Lewis and O’Riain 2017).
Other valid points related to the comparison between ABB and traditional budgeting
shows that- traditional budgeting process involves over dependence on the budget that has been
prepared in the previous year. This could be an unrealistic approach as the firm might face
unwanted consequences at times. If the budget constructed in the previous year by the firm is not
correct then the same mistakes would be spotted in the budget in the current year and also in the
future as well. If these mistakes are continued then the firm could suffer from lack of growth in
the future.
On the other hand, the process of ABB involves the in depth understanding of all the
functional areas of the firm. If the manager who has been given the responsibility of preparing
the budget is not aware of all the functional areas of the business then the firm would be
suffering from wrong evaluation of the business and it would lead to the preparation of an
inaccurate budget (Kulp and Heymann 2015).

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Suitability of activity based budgeting in CSR Limited:
There are different parts involved with ABB, it would enable CSR limited in accomplishing a
running budget balance as well as a financial budget balance individually (Kandler, Honold and
Wimmer 2015). When the manager of CSR limited who is responsible for the preparation of the
budget would be able to construct a running budget progressively, followed up by the
preparation of financial budget based depending on the adversities faced during the preparation
of the operating running budget balance. The focus point of CSR limited in utilising ABB would
be depending on working out a budget that would be constructed in a straight forward way in
order to coordinate with the activities and resources and it includes non-financial cost drivers as
well. This would help in clearly examining the inefficient and unbalanced resource
inconstancies. This would benefit CSR limited in assigning resources in a better way, it would
also help in bringing down costs, assist in decisions related to pricing and gaining vital data for
utilisation of the value concentric related to the resources (Ilham, Nurdin and Tsuji 2018).
The process of ABB helps in taking the decisions regarding the activities based on
directing the firm in, this case CSR limited. ABB links strategy with budget and disposes of the
deficiency of strategic soundness, it provides budgetary control and proper mapping of the
strategies made by the directors of the firm (Sampalis et al. 2018). The strategic direction
provided by the ABB is a sequence based on activities and value related to operating process. It
would help CSR limited in pointing out the trend of market demand, the process price expansion
and after sales services provided to the customers. The firm would gain more net earnings by
properly allocating the resources, utilising the coordinated strategic mapping and bringing price
expansion in order to fulfil the conditions of immaculate utilisation of ABB. The labour and
direction process of CSR limited would depend on ABB, as it would point out the position of the

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digits which the firm needs to accomplish each month on an annual basis. It would help them in
understanding and executing the figures constructed in it in a diplomatic way, it would
encourage the employees in working with more passion, in order to earn more profit for CSR
limited.
Hence, ABB would enable CSR limited in making it possible to carry out the constructed
strategy. Under ABB process, there is a budget ready for each activity, therefore, when the
budgeted strategy is being utilised every employee would know how much output they need to
generate during the specified time (Howell and Cheyne 2018). At the same time ABB would
help CSR limited in following the strategies on a daily basis for fulfilling the goals of the firm.
Conclusion:
The current study focuses on the study of CSR limited and its budgetary system. The firm
wants to know whether activity based budgeting (ABB) is suitable for them or not. The first part
of the study has discussed the relevant points regarding CSR limited. The second part highlights
the features of ABB which is vital for the managers, executives and directors of the firm. The
next part of this study shows the comparison between ABB and traditional budgeting and it is
found that the former is a better choice in the current state of competition prevailing in the
market. Finally, the last part of the study focuses on discussing the suitability of this process in
CSR limited and it is found that incorporation of this process would enable the firm in earning
more revenue in the long run.

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