dl contral activit rom debtors and the return of goods by debtors ies that are r
ID: 2330558 • Letter: D
Question
dl contral activit rom debtors and the return of goods by debtors ies that are required to imit the loss from the onal approach to budgeting works well for unit-lewel actvily costs where the consumption af covearies in proportion with the volume of the final output. However, where tt of QUESTION 4 The resources va varies irn output relationships, and the consumption of resources do not vary with the ion of there are no d ne conventional budgets merely serve as authorisation levels for certain levels of spending for each he ed item of ex of the above discuss an alternative method af budgeting that uses cost dniver data for activities or cost pools 0 65 64 PROGRAMME HANDB0OK: JANUARY 2018 INTAKEExplanation / Answer
In the given problem conventional approach to budgeting provides decision makers less information because expenditure is speculative and not reliable for decision making and as a result conventional approach is less useful and a need arise for an alternative budgeting approach.
The alternate approach that uses cost driven data is ABB i.e Activity Based Budgeting.
ABB is a method or approach of budgeting based on an activity framework which uses cost driven data in setting budget. It focuses on activity rather than functions.
ABB has three steps -
1.) Identify activities and their cost drivers.
2.) Determine or forecast the number of units of cost driver for the required activity level.
3.) Calculate cost per unit of activity i.e cost driver rate.
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