Question

Which one of the following is a benefit of activity-based budgeting?*

A) It uses a single cost driver for batch-level activities or higher.
B) It is the most convenient method of budgeting as it requires minimal effort.
C) It provides detailed information that improves decision making.
D) It is the most efficient method to budget direct costs and trace them to individual cost objects."

Answer 1

The benefit of activity-based budgeting is that it provides detailed information which improves decision making by taking into account various costs specific to different activities, supporting informed and strategic budget allocations.

Step-by-step explanation:

One of the benefits of activity-based budgeting is that it provides detailed information that improves decision making.

Unlike traditional budgeting methods, which may use a single cost driver or focus primarily on the convenience of budget preparation, activity-based budgeting delves into the specific activities that incur costs within an organization.

This method emphasizes the understanding of fixed cost, marginal cost, average total cost, and average variable cost, as they relate to specific activities, leading to more informed and strategic decision making.

It also aligns with the principles of marginal analysis, which evaluates the additional benefits and costs incurred from a decision, helping organizations optimize their budgeting processes for better financial control and goal attainment.