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Key Features of Activity Based Budgeting- Adelaide Brighton Cement

University: University of Cambridge

  • Unit No: 2
  • Level: Post Graduate/University
  • Pages: 13 / Words 3220
  • Paper Type: Assignment
  • Course Code: ACCT3104
  • Downloads: 154
Question :

This assessment will cover following questions:

  • Adelaide Brighton Cement is the renowned manufacturer of cement. Explain the usage of tool activity-based budgeting and highlight its features
  • How planning is done in Adelaide Brighton Cement and also describe control activities?
Answer :
Organization Selected : Adelaide Brighton Cement

INTRODUCTION

Management accounting is considered to be one of the most appropriate provision which in turn aids at carrying out the various performance and control functions within the company. Activity based budgeting is considered to be very useful which in turn helps in analysing the cost associated with carrying out each set of activity (Mauro, Cinquini and Grossi, 2017). This study will highlight on the key features of the activity based budgeting. This study also includes significant difference between traditional budgeting system and activity based budgeting. Furthermore, this study determines the ways where activity based budgeting in turn facilitates controlling and planning activities. This study also investigates, suitability of the activity based budgeting for the specific organization.

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MAIN BODY

a) Description of organization

Adelaide Brighton Cement is considered to be one of the leading Australian manufacturer of the lime, dry blended products, integrated construction material and cement. This company was opened in the year 1882. Adelaide Brighton Cement tends to produce cement, clinker, lime products, ready to mix concrete products, ground blast furnace slag and fly ash. Adelaide Brighton Cement company one of the key activity is to produce, import and distribute range of the products offered by the organization (Adelaide Brighton Cement Ltd, 2020). This company is listed on Australian stock exchange where over 1600 employees tend to work passionately and dedicatedly with the culturally diverse and environmental friendly company in Australian territories and states. Adelaide Brighton Cement tends to produce various range of products and services in order to build, construct, mineral processing market and infrastructure. The operational based facilitates of the Adelaide Brighton Cement tends to largely focus on prompting supply to the customers which in turn focuses on maintaining strategic balance which in turn is considered to be necessary for meeting the demand of the customers and company across nation (Adelaide Brighton Cement Ltd, 2020). This in turn helps company in offering supply package which in turn are flexibly supported by the storage, supply logistics and transportation for various locations throughout Asia and Australia. Adelaide Brighton Cement tends to operate its distribution and manufacturing facilities in New South Wales, Victoria, Fyansford, Northern Territory, South Australia, etc. Adelaide Brighton Cement is highly committed to the sustainable development of the variety of range of actions and initiatives which has been implemented across the organization. It tends to offer long term competitive business performance by being environmentally sustainable and economically responsible. Adelaide Brighton Cement is considered to be one of the second largest supplier of clinker and cement products in the Australia. It is also considered to be of the largest manufacturer of line in the Australia. It has its production plant in Western and South Australia and also Northern territories of Australia.

b) Analysis and key features of the activity based budgeting

Activity Based Budgeting is one of the most appropriate budgeting plan which in turn is very useful in analysing the cost associated with carrying out each set of activity. Activities which in turn incur the cost are properly evaluated and analysed (Langfield-Smith and et.al., 2017). Activity Based Budgeting is very useful in eliminating the bottlenecks and also helps in improving the relationship of the various departmental heads within the organization. On the other hand, activity based budgeting is considered to be one of the most complex process and in turn also requires better understanding in order to predict the cost associated with each activity within the organization. It is considered to be very useful in examining the each cost driver. This budgeting plan is considered to be very useful in eliminating irrelevant activities which in turn helps in improving the functions of the organization. It is considered to be very useful in saving the cost to the business which in turn aids to gain competitive edge in business market. On the contrary, one of the key disadvantage associated with the Activity based budgeting is that, it results in relatively more expense and higher cost to the business (Mauro, Cinquini and Grossi, 2017). This in turn eventually leads to lower profitability and growth for the business. Activity based budgeting is considered to be very useful in effectively improving the various relationship between the customers and organization. The key drivers of the activity based costing is mainly linked with the activity cost drivers which in turn largely influences the cost associated with the variable cost, maintenance and labour. Cost drivers are considered to be very essential in allocating the overhead and indirect cost of each activity. This method of budgeting is considered to be crucial because it helps the management of the company to make more accurate pricing decision. This in turn helps in creating better understanding related with the cost drivers and overhead cost related with each activity. This in turn helps managers in eliminating and reducing the function of non- value added activity in order to focus on more profitable units or activities of the organization (Shepherd, 2017). Activity Based Budgeting is referred to as the integrative procedure to prepare, implement and operate budgets. One of the key objective of the activity based budgeting is that, it helps in improving the relationship between the customers and the organization in order to carry out effective business operations.

Key features of Activity Based Budgeting:

  • Activity Based Budgeting is effectively prepared beforehand which in turn is very useful in analysing the future course of action.
  • Activity Based Budgeting is beneficial in expressing the budget within the financial terms (Shah, 2018). It also helps in evaluating the probable expenditure and income from each activities of the organization.
  • It helps in forecasting the operations of each activity. This in turn helps in determining the most beneficial activity for the organization which in turn results in higher profitability.
  • Activity Based Budgeting is prepared by taking into consideration past trends and experiences within the business framework.
  • It is also very useful in determining the financial position by effectively controlling the deviations.
  • Activity based budgeting key feature is that, it is useful in assessing the cost associated to perform certain set of activities.
  • The key feature is to identify relevant activities and also delineate the cost associated with per unit of the activity.
  • It is considered to be one of the useful tool to multiply the various results of each activity level.
  • The key feature of the activity based budgeting is that, it tends to act as a barometer in order to measure the performance of the organization by effectively comparing the actual results with the budgeted plan (Jakobsen and Pallesen, 2017).
  • Activity Based Budgeting tends to take into consideration both indirect and direct cost for carrying certain set of business activities.
  • The key feature is that, it helps in calculating the true cost of performing several activities of the organization.
  • Another major feature is to examine the amount of resources which in turn is consumed by the each operational activity of the organization.
  • This budgeting plan is considered to be very useful for the internal management of the company to make strategic business decision.
  • The key feature of activity based budgeting is that, it helps management of the company to provide better insight which in turn helps in better resource allocation, decision making and supporting priorities.
  • Activity based budgeting key feature is to increase transparency and traceability in order to allow the balancing capacity (Erkutlu, Tanç and Koçyiğit, 2017).
  • It aids management to make decision related with the operational terms rather than on financial terms.
  • The key feature is that, it aids to integration of the budget effectively with several other initiative like benchmarking, KPI's, etc. by the management.
  • It also demonstrates areas of inefficiencies and imbalances in order take necessary corrective actions.
  • Activity based budgeting key feature is that, it allocates overhead cost to each activity.
  • It aids to assess the expenditure, income and profitability of the company.

c) Difference between activity-based budgeting and traditional budgeting.

Budgeting is the the tool used by organisations to enhance the business processing. Almost all then companies are preparing budgets to have control over their processing activities. There are various budgeting techniques which are used by the organisation for improving their performance in the market. Companies are using the budges since the manufacturing has came into accounts. It provides the company with the direction in which the company is supposed to move ahead. It provides the road map to companies so that they can direct their process in the specific operations with the given amount of resources. Previously budgets were only prepared for checking the availability of funds to carry out the operations. There are various budgeting techniques evolved with time (Ohemeng, 2016). All the techniques differ from each other as all are based on separate concepts. Difference between activity based and traditional budgeting is explained below.

Traditional Budgeting

It is method of preparing budget where the budget of last year is taken as base. Companies prepares the budget for current year by making changes to the budget of last year by making adjustments. It makes adjustments related to consumer demand, inflation rate, market situations etc. Costs and revenues of last year remain integral part in budget of current year. In traditional budget all the items that are over & above the budget of last year has to be justified. Traditional budgeting provides company to coordinate its financial activities over a extent. It provides framework for control, that makes easier for company in managing the activities. Traditional budgeting is easier to implement and could be prepared much faster in comparison with the other budgeting techniques which saves lots of time. It is an oldest technique used in budgeting and is used by all the organisations as it provides stability to functions of organisation. Traditional budgeting promotes decentralization in organisations such as banks. Any unit of the company can prepare its own budget and make changes allowed within the limits allowed.

Activity based budgeting

It is a budget using activity based costing methodology for preparing the budgets. The budget do not considers budget of previous year for preparing the budgets for current year. Budgets are prepared by the organisations after studying the areas incurring cost. The study helps in allocation of resources in the company (Ozyurek and Uluturk, 2016). The research is carried out for activities carried out by every department. The main focus of activity based budgeting is to provide base for resource allocation among the activities carried out by the organisations.

Differences between the traditional budgeting and activity based budgeting.

  • Traditional budgets are prepared taking the budget of previous year as base. The budgets are not prepared from the start every year. On the other hand activity based budgets are prepared from zero it does not take into account the budgets of previous year.
  • Traditional budgets focus over the expenditures incurred by company in previous year where the traditional budgets focus over taking new economic appraisals.
  • Activity bases budgeting is project or decision oriented as research is carried out before the budgets for activities are prepared by company. Traditional budgeting is accounting oriented as adjustments are made in previous budgets only.
  • Traditional budgets are not required to be justified only the adjustments in current year are justified. In activity based budgets justification is to be made of both proposed and current projects after considering costs and benefits. All the items are to be justified in the budget.
  • Traditional budgets gives priority t budgets of previous year as compared to activity based budgeting where decision are taken on comprehensive research and decisions.
  • All the factors are not considered by traditional budgets as it is prepared over last year budgets and activity based budgets are prepared from the fresh after considering all the factors associated with the budgets of current year.
  • Resource allocation is not appropriate in traditional budgets as they are prepared generally for whole organisation where activity based budgeting creates adequate allocation of resources as they are made for particular activities (Shepherd, 2017).
  • Risk of variances are high in traditional budgeting as compared with the activity based budgeting.
  • Traditional budgeting promotes decentralized approach where the activity budget promotes centralized approach.
  • Traditional budget is less expensive where the cost of implementing the activity based budgets is more expensive.
  • Traditional budgets can be prepared very fast where the activity based budgets are time consuming.

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d) Activity Based Budgeting in planning and controlling the activities of Adelaide Brighton.

ABB is a budgeting method that is used by ten organisation to provide increased level of transparency to the budgetary process used by it. In other words it is referred as method used where revenues generated by research and instructional activities are directly allocated to nits which are responsible for concerned activity. It empowers the organisation in planning & accountability and also creates incentives to units for managing the expenditure and resources more efficiently.

Adelaide can have direct control over resources generated by the activities. It helps organisations to set priorities for the incentives and for developing more consistency in activities in achieving the overall goals and objectives of the organisation. Brighton will be planning the budgets for current year after carrying out research about the risks and factors that can affect the operations of company. Since the company is manufacturing concerns it undertakes several processes and activities for the production of cement and limestone. It can plan about the resources for each activity separately that provides greater control to management (Sangiumvibool and Chonglerttham, 2017). This also makes the system transparent as all the operations are carried out keeping view the budgets prepared.

The activity-based budgeting provides more flexibility to the company as compared to other budgets. It provides space for improvement for changes occurring in between the process after the budgets are prepared. These changes are generally because of the external factors that are beyond the control of organisation like political and other economic changes. This helps in having better control over the activities of organisation. It is essential for the business enterprise to have space while preparing budgets so that changes can be made as and can be implemented on the activities. Adelaide Brighton is having its operations at different location of Australia. It is required to have greater control over its activities.

Companies having less control over its operations tend to have high costs and mismanagement. For the companies to have effective control are required to have an efficient which allows the company to make adjustments when required. The activities and operations performed by the business requires greater control as the resources are allocated to every activity based on the research conducted by the company. If the process are not monitored than the resources will not be utilised as it best for the production activities (Popesko and Šocová, 2016). The resources will not be utilised properly if the management do not have adequate control over its operations. The budgeting techniques allocates resources accordingly and also the budgets are prepared for every activity separately. This gives better control to the organisation over its activities.

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e) Discussion over the suitability of the activity based budgeting for Brighton

Companies prepares budgets to have effective control over its operations. It provides the company the base for allocation of resources. Budgets helps in giving he direction to the company for having a structured path to be followed during the process. There are various budgeting techniques available with the organisation but it is important to choose the budgets that is appropriate with its operations. Company is indulged in production activities of cement and limestone. Therefore the budge that is best suitable for the company should be adopted.

Activity based budgeting is used for preparing budgets after carrying out research. It does not takes into account previous budgets for budget of current year. ABB requires the company to determine its cost of activities on the basis of their expected size & resource consumption. The budget is suitable for companies having repetitive activities and the processes that are caused by orders, demand, products and customers. It is suitable as method provides more detailed analysis of activities that helps in having better control over its operations and the cost structures. Managers of company van focus over effective utilization of resources for carrying the business activities. The budgeting technique is suitable for the company as it provides the company to eliminate problems of incompatibility associated with the strategies implemented by te organisation and it creates value for the entity (Kenno and Sainty, 2017). Company is having large operations and activities which requires resources for smooth flow of production activities. The tool provides for allocation of resources adequately to the activities so that company will not face any problem. It also suitable as provides space for making possible adjustments in the process that prevents mismanagement in the operational activities.

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CONCLUSION

From the above conducted study it has been concluded that, activity based costing is considered to be very useful in determining the income and expenses and various cost drivers of each activity of the company. This study also concludes that, Activity based budgeting is useful in eliminating the ineffective activities. It has been concluded that, traditional budget system adjust previous budgeted plan. Activity based budgeting is considered to be very useful in making strategic decision which in turn leads to higher operational growth. This study also demonstrates that, activity based budgeting in turn facilitates controlling and planning activities. This study states that, activity based budgeting is very much suitable for the company because it helps in taking into consideration most profitable activity to attain higher growth.

REFERENCES

  • Erkutlu, H.V., Tanç, Ş.G. and Koçyiğit, S.Ç., 2017. The Factors Used to Create Performance-Based Budgeting: A Research on Turkey. ACCOUNTING AND CORPORATE REPORTING, p.297.
  • Jakobsen, M.L.F. and Pallesen, T., 2017. Performance budgeting in practice: The case of Danish hospital management. Public Organization Review.17(2).pp.255-273.
  • Kenno, S.A. and Sainty, B., 2017. Revising the budgeting model: challenges of implementation at a university. Journal of applied accounting research.
  • Langfield-Smith, K and et.al., 2017. Management accounting: Information for creating and managing value. McGraw-Hill Education Australia.
  • Mauro, S.G., Cinquini, L. and Grossi, G., 2017. Insights into performance-based budgeting in the public sector: a literature review and a research agenda. Public Management Review. 19(7). pp.911-931.
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