Limitations and Advantages of ABC for Budgeting

Activity Based Costing
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Activity Based Costing > Best Practices > Limitations and Advantages of ABC for Budgeting

Limitations and Advantages of ABC for Budgeting
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What are the limitations and advantages of ABC in the context of preparing plans and budgets? (...) Read more? Sign up for free
 

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ABC limitations and benefits
KTK
This is a very good query.
When we look at ABC for the estimation of plans/budgets, the major limitation is not having a proper estimation of the costs for some critical activities such as R&D. The second limitation in using ABC for plans/budgets is a result of the first, i.e. when we miss out proper estimation of the costs for one activity that results in breakdown in the whole chain of activities.

Though there are many advantages, by which we can always overcome the limitations, I would like to mention the following two:
Adv 1: When we carry out planning/budgeting based on ABC we can always have more accurate estimations being done.
Adv 2: We can always figure-out where our estimations went wrong, since we know what each activity contributed in our planning/budgeting.

ABC is the basis for Zero Based Budgeting(ZBB) and ZBB has yielded good results in many big organizations.
 

 
ABC Limitations
Rajendra
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Abc and Abp&b
Romeo G. Manalo, Management Consultant, Philippines, Member
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