Activity-Based Budgeting vs Traditional Budgeting
Activity-based budgeting asks what work must be performed; traditional budgeting often starts from existing spending levels.
Traditional budgeting
A traditional budget often begins with prior-period departmental costs and adjusts them for expected changes.
Activity-based budgeting
ABB starts with expected output or demand, identifies required activities, and then estimates the resources those activities will consume.
Cost-driver link
Because costs are tied to activity drivers, ABB can make resource requirements and inefficiencies more visible.
Exam strategy
If the budget builds from activities and cost drivers rather than last year's departmental total, think activity-based budgeting.
The takeaway
Traditional budgeting often adjusts prior spending; activity-based budgeting derives resource needs from expected activities and cost drivers.
Related Summit resources
FAQ
What is the key distinction?
Traditional budgeting often adjusts prior spending; activity-based budgeting derives resource needs from expected activities and cost drivers.
What should I identify first?
Activity-based budgeting asks what work must be performed; traditional budgeting often starts from existing spending levels.
Why is this tested?
Compare budgeting from expected activities and cost drivers with budgeting that starts from prior-period departmental spending.