What is activity-based budgeting?

Activity-based budgeting (ABB) is a budgeting method where activities that incur costs are recorded, analyzed, and connected to their outputs. It differs from traditional budgeting as it provides a more detailed view of where funds are being spent and how they contribute to an organization's goals.

In activity-based budgeting, every expense must be linked to a specific activity. This process helps to understand the cost of each activity that goes into producing a product or service. It allows management to make informed decisions about reducing costs, improving processes, or discontinuing unprofitable activities. ABB can be complex to implement but can provide valuable insights into the company's cost structure.