T3 2019 HA2011 Management Accounting: Activity-Based Budgeting Report

This report examines activity-based budgeting (ABB) in the context of AGL electricity. It begins with an executive summary, followed by an introduction that defines budgeting and introduces both ABB and traditional budgeting methods. The report then describes AGL electricity, its operations, and its goals. It details the characteristics of ABB, including the identification of activities, cost allocation based on activities, and resource allocation. A key section compares ABB with traditional budgeting, highlighting the differences in data usage, time investment, and resource allocation. The report also explores how ABB is used for planning and controlling business operations, providing an example of cost calculations. Finally, it assesses the suitability of ABB for AGL electricity and concludes that ABB is a superior method for the company. The report includes a reflective journal and references.

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Management accounting

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Executive summary
The report has been prepared and in that there is the consideration of activity-based budgeting
in the context of AGL electricity. The company’s description has been provided and in that
the activities which are provided by the company have been identified. There is the
consideration of the features which are there in relation to the activity-based budgeting. The
complete information about this method has been provided which created a strong
understanding. It has been identified that in this system there is the consideration of various
activities and allocation of resources is made on the basis of that. There is the proper
comparison that has been undertaken between the traditional and activity-based budgeting
and all the differences have been determined. It is ascertained that activity based approach is
better than the traditional approach and shall be used in the business. The manner in which
planning and controlling are carried with the use of activity-based budgeting has also been
involved in the report. The AGL group will be using this approach for its benefits and that
has also been taken into consideration in an appropriate manner.

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Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
a) Description of AGL electricity..............................................................................................4
b) Activity-based budgeting and its characteristics...................................................................4
c) Comparing activity-based budgeting with traditional budgeting...........................................6
d) Use of activity-based budgeting in controlling and planning................................................7
e) Suitability of Activity based budgeting for AGL electricity..................................................8
Conclusion..................................................................................................................................9
Reflective journal.....................................................................................................................10
References................................................................................................................................12

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Introduction
Budgeting is the main requirement of any business as there are various plans which are
formulated with the help of this. The incomes and expense which are required to be made in
the given period are specified in the same and they are required to be followed to manage all
the operations in the most effective manner. In this report, various methods of budgeting will
be discussed which involves activity-based budgeting and traditional budgeting. All of this
will be discussed in context with AGL electricity and both the methods will be compared.
The manner in which planning and controlling will be made possible by using the same will
also be taken into account. The manner in which activity-based budgeting will be suitable for
the company will be considered and there will be a proper discussion which will be made in
this respect in the report.
a) Description of AGL electricity
AGL is an electricity company and is the largest company in the country generating a higher
portfolio and renewable energy. The main motive of the company is to provide customers
with affordable secure and sustainable energy (AGL, 2019). The company is located in
Australia and is providing services all over the place. There are various new challenges that
are taken by the company and in that new and advances resources are taken into use. With the
help of the new advancements are made by the help of which aims which are set are attained
and also the main purpose of the business is fulfilled.
There are various strategies that are followed by the company and they include social license,
transformation and growth (AGL, 2019). With the help of them, the operations are carried in
a very effective manner which is beneficial in the long run.
b) Activity-based budgeting and its characteristics
Budgets are made in which the targets are set which are required to be followed and for that
proper recording will be required to be made. There are various methods that can be used to
undertake this process and in that one is activity-based budgeting. In any process, all the
activities which are undertaken in the business are considered (Cardoş, 2014). They will be
identified and will be incorporated in the budget which is formulated to attain the targets. In
this, the cost which is incurred in the carrying out of the various activities is determined and

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then with the help of that budget is prepared which will be required to be followed by the
company in the coming period. In most of the budget, the previous year budget is taken into
use and then all of the changes are incorporated in the same to make the new budget. On the
contrary, there is no use of the historical data in activity-based budgeting and only the data in
relation to the current activities are used. There is the identification of the tasks which are to
be performed and with that, the cost and incomes associated with the same are also
determined. They all are collected and taken into use for the formulation of the best quality
budget.
In any business the number of resources that are available is limited and due to that, it is
required that they shall be allocated in an appropriate manner. This will be done by
identifying the requirements and then allocating the resources accordingly so that the best use
of the same can be made possible. With the help of this, there will be the attainment of the
best results which will be beneficial for the business. This method will be helping in carrying
all the activities with high potential. There is the consideration of all the activities which are
involved and by that there will be a proper process that will be defined to carry them (Al
Hanini, 2013). In this process, there is the use of cost drivers which are associated with all the
expenses which are incurred. There is considering all the expenses in relation to them and
proper recording for them is taken into account. All the expenses which are to be incurred are
identified with the help of them and it is beneficial for management to manage them in the
most adequate manner. There will be a proper system that will be followed and in that the
cost will be reduced by maintaining proper control and there will be saving which will
increase the overall profitability of the business.
As there is proper allocation so the difficulties which are faced in carrying out of the
activities are eliminated and proper production is carried by which best quality results are
attained. Due to the availability of all the information in this method the management is able
to make the best decisions that will be in the interest of all. The decisions will be made for all
the tasks which are to be performed and due to that, they will be performed in the best
possible manner. All of these decisions will be undertaken by the managers and employees
involved (Pazarceviren and Celayir, 2013). All of them will be maintain appropriate
communication among everyone and this will enhance the whole system which will be
beneficial in carrying the overall process of the activity. There will be proper planning which

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will be undertaken to complete the task and that will be helpful in making the process
successful to attain the best quality results.
There will be a proper following of the budget and with the help of that actual performance
will be made. There are some deviations that arise among the budgeted and actual
performance and it is required that they shall be identified on time. It is necessary as then
only the reason for the deviation can be identified which will be helping in making the
improvements in the coming period. There will be consideration of the same and then the
activities in which the variations are arising will be considered to make the improvement in
them and attain the targets in them also. All of the areas which are lacking behind will be
identified and then correction in them will be made by which the success can be achieved in
all of the activities.
For example in the company there is inspection cost which is levied at rate of $25 per
inspection and the processing cost is to be charged at $500 per process. In addition to that
there is machine maintenance which is for $20 per machine hours. The budget for the coming
period will be made in below provided manner.
particulars Cost per driver Expected
level
Total cost
Inspection cost 25 50 1250
processing cost 500 10 5000
Machine maintenance cost 20 500 10000
Total budgeted cost 16250
By the help of this approach the total cost is calculated with the most effective use of the
available information.
Due to all of the identified reasons the activity-based budgeting is an important process and is
used by most of the companies in the current period.

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c) Comparing activity-based budgeting with traditional budgeting
In the changing environment, there are various changes that take place in the business
processes also and in that one is budgeting. Earlier there was the use of the traditional costing
which has now been replaced by activity-based costing. Both the approaches are highly
different from one another and it is important to understand the difference among them so
that all of the areas in which one is better than the other can be ascertained. Traditional
budgeting was a very simple approach in which no high practices were adopted and the
budgets were made by the business on the basis of the past data. In that, there was no new
research that was carried out and the experiences of the past were taken into account
(Popesko and Šocová, 201). All of the variations which have arisen in the past were
considered and the changes in the budgets were incorporated on the basis of that.
In comparison to the traditional budgeting, the activity-based budgeting is a difficult
approach in which new data is collected each year for the preparation of the budget. In this,
the research is carried and then the data which is identified is taken into use. There is no
consideration of the past data and all the budgeting processes are started from point zero. In
the making of the budget under this approach, there is the use of more time and efforts which
are not required for the traditional budgeting.
Under the traditional approach, the total expenses and incomes which are involved in the
business are considered but the case is not the same with activity-based budgeting in which
activities are considered. There is the involvement of various tasks and all of the expenses
and incomes which are there in association with the activities are identifies and considered in
making of this budget. Under this, the resources are allocated to the particular activities
which are to be undertaken and the budget is also made according to that.
In the process of traditional budgeting there was the incorporation of the historical data in the
making of accounts and in that various processes and procedures were undertaken. The
information is recognized in the same and then the recording of the same is taken into
account. This is made for the complete business which is in contrast to the activity-based
budgeting in which only the specific activities are taken into consideration. The activity and
its elements are identified and then the budget is formulated by considering each and every
area of that task (Jänkälä and Silvola, 2012). With the help of this, there is an improvement in
the allocation and also the implementation is made in a better manner. There will be proper

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clarification which is to be taken for the items recorded as they are in relation to a particular
project which is to be undertaken. This will be helping in making the best and accurate
budget on which reliance can be made.
The process of making the budget in both the approaches is very different and so it is
required that the same shall be identified and understood in an appropriate manner. There is
the use of the new and researched data in the activity-based budgeting but the same is not
made in case of the traditional approach in which the past data is incorporated with some
changes. Activity-based budgeting involves various aspects and for that the allocation of
resources is made and this is not done in the traditional budgeting approach. All of the
aspects in relation to both the approaches have been discussed and the manner in which both
are different from one another is identified (Holm, Kumar and Rohde, 2012). By this, there is
proper understanding which is gained and it will help the company in making the best budget
which will be improving the overall process and working. The manner in which they are
beneficial for the business is identified which is the main reason to incorporate it in the
process of the business.
d) Use of activity-based budgeting in controlling and planning
In the undertaking of the business, it is highly required that there is a proper plan which is
used as by that the carrying out of all the operations is made appropriately. In this process,
there are various methods that are available and out of them, activity-based budgeting is the
most appropriate one. Under this, there is the plan which is made in respect of all the
activities and with the help of that, there is the proper functioning which is made possible.
There will be proper guidelines that are available with the staff and they will be required to
perform in accordance with the same (Siyanbola, 2013). The planning is encouraged by the
help of this method of budgeting and in that there is the consideration of various aspects
which are relevant for the effective attainment of the targets.
In this, all the expenses which are to be incurred will be identified and this will be helping
business in establishing the required level of control. There will be following of the plan and
by that, the costs which can be incurred in excess will be controlled as the task will be
performed as per the plan and budget which has been prepared. This will lead to effectively
controlling and all of the costs which are in excess will be cut off and there will be proper
savings which will be made.

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In the undertaking of any activity, there are various processes that are involved and in that it
is required that the cost shall be allocated in an appropriate manner so that the proper balance
among the cost and profit can be maintained (Xu, Frankwick and Ramirez, 2016). This will
be made possible with the help of this approach as there will be proper allocation which will
be made and also all the activities are identified so the ones which are of no use and are
providing the business with no extra gain will be eliminated. This will ensure the reduction in
the total cost which is incurred on the process and by that the overall profitability of the
company will be improved.
The manner in which the costs are to be incurred is specified in the budget and by that, it is
the responsibility of the managers to ensure the proper compliance with the same. it will be
required that the plan shall be implemented in an effective manner and by that, all of the
loopholes which are involved in the process will be terminated. They will be planning the
tasks in such a manner that all of the targets which are specified in the budget can be attained
and for that, there will be proper guidelines which will be provided to the employees who are
to work on the activity (Huynh, Gong and Huynh, 2013). The aspects which are identified
proves that there will be proper controlling and planning which will be encouraged with the
help of activity-based budgeting and so it is beneficial for any business to undertake the
same.
e) Suitability of Activity-based budgeting for AGL electricity
The activity-based budgeting will be undertaken by the AGL electricity as this will be
providing the company with various benefits that are helpful in the long run. There are
various procedures that are undertaken in the electricity business and all of them will be
identified under this approach. After the identification of the activities, there will be the
determination of the various costs which are involved in the same. In any activity which will
be performed, there will be a high cost which will be incurred and it will be required that they
shall be managed in the most effective and efficient manner.
There is a need for various resources in this process and the availability of them is limited.
With the help of this budgeting, they will be allocated in the best manner and that will be
helping the company in completing its tasks with the available resources in the best possible
manner. The targets which are set will be maintained and this will be possible with this
approach only (Suriani, 2015). Under this method, all of the areas which are involved will be

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identified and will be adhered to so that the areas which require focus will be considered and
maintained properly. There is the proper research which is carried under this method and by
that all of the aspects which are prevailing in the market will be identified and by the help of
that the budget will be made. All the information which is collected will be made present in
the budget and by that there will be proper transparency which will be managed.
The information will be made available to all and the management will be making the
decisions on the basis of the same. They will be made in such a manner that the costs which
are involved can be reduced and reached a minimum level by which all can be completed.
This will ensure that all the areas have the required resources and that no amount of shortage
will be faced. The panning will be made by the group on the basis of the same and this will
be in the interest of the company as there will be consideration of all aspects and also they
will be completed in such manner that the set aims and objectives can be accomplished.
There will be proper decision making which will be made and that will be helping the
company in managing all the tasks effectively (Oseifuah, 2014). The services will be
completed in such a manner that quality will be improved and the requirements of the
customers and market are fulfilled in the best manner by dealing with the competition
effectively. Due to this, it can be said that there will be a proper use of this method in AGL
and it will be able to improve all the functioning with the help of this approach.
Conclusion
The report above elucidates all the aspects in relation to the activity-based budgeting and in
that the consideration is also given to the traditional budgeting. The company which has been
chosen was AGL electricity and there is a proper description which is provided in relation to
the company and in that all of the areas of the company have been covered. There is the
proper discussion which has been carried for the activity-based budgeting and in that all of
the characteristics in relation to this have been taken into account. The complete details have
been provided by which proper understanding is developed. The earlier approach which was
used for traditional budgeting has also been considered and this has been compared with
activity-based budgeting. Proper comparison has been made and then the manner in which
this new form of budgeting helps in planning and controlling. With that there is the
identification of the suitability of this approach for AGL electricity and in that the manner in
which this approach will be used and be beneficial for the company has been accounted for.

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Reflective journal
In this report, the understanding of activity-based budgeting has been gained by me. I
understood that this budgeting is important for the business has there is the consideration of
the particular activity under this and for that proper research is carried out. The budget is
made with the help of new information and so the budget is updated and is most reliable. The
operations are carried with the help of this and help in attaining the targets. The proper
understanding is gained for the same and I identified the difference which is involved among
the activity-based budgeting and traditional budgeting. It is identified by me that there is the
use of previous year information in traditional budgeting which is not done under activity-
based budgeting and the same makes it strong. This is beneficial as the business will be
making research and in that, all the new developments will be involved in the budget which
will make it suitable for the company and to deal with the available competition in the
market.
I came to know that this process will be involving a particular activity and as that will be the
main focus so all of the areas in the same will be covered. There will be consideration of the
available resources and in that the required amount for each will be determined. On that
basis, there will be proper allocation which will be made and that will be used to perform the
activity effectively. The managers will be having all the information and that will be used by
them in decision making. It is identified by me that AGL will be using al the prepared
budgets in the proper functioning and the mangers will be making the best of the decisions
which are advantageous for the company in the long run. There will be compliance with the
budget and by that the aims which are set by the business are accomplished. The manner in
which the tasks are to be performed is also identified and the same enhance its productivity
and the results which are made available are also improved.
The business will be having a proper plan in form of the budget which will be required to be
followed by all and this will be benefiting the managers as they will be required to follow the
same and provide the guidelines on the basis of the same. The employees will be following
them and that way the complete process will be improved. I understood that this will also
help in controlling the expenses as they will be incurred in accordance with the budget and by
that they will be controlled. There will be a limit that is involved and so all the excessive
expenses will be avoided. This way the profitability of the group will be improved and it will
be able to maintain its position in the market in the long run.

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