Activity based costing for activity based budgeting and an application on a production company

In today's fast-changing business environment, the right tools are needed in order to use the scarce resources of companies more effectively. Companies should aim at not only allocating the resources effectively, but also developing and supporting an ideal management understanding. In this context, company budgets should be considered as a means of powerful tools to be used to increase the productivity and profitability. However, it is stated that traditional budgets lack such functions of satisfying the necessities and hence meet the expectations. At this point, today's understanding of budget management practices is insufficient when the budgets are used as a tool for management. For traditional budgets are generally seen as practices, i.e. tools, focusing on the pre-set financial targets. Activity-based budgeting approach challenging the shortcomings of traditional budgets, is a model in which quantity of the resources are assessed in order to reach the desired outcomes for a given period of time. Activity-based budgeting approaches give companies a framework which is not limited only to financial data; but at the same time the planning of the operational data and analysing the results. In this respect, the aim of the study is especially to develop an activity-based budgeting model and apply this model to a company and finally explain the application procedures of activity-based budgeting approach in detail. The application case gives useful information as presenting the application steps clearly and dealing with fixed and variable general overhead costs separately. In this study, first of all, literature review is carried out on activity-based costing, activity-based management and activity-based budgeting. Hence, structure of activity-based costing and activity-based budgeting, application procedures, advantages and disadvantages have been explained. Secondly, a theoretical activity-based budgeting model has been developed and the operation of the model tested against the real data provided from a manufacturing company has been shown. It is thought that the presented activity-based budgeting model provides an effective structure to realise the cost control and performance appraisal objectives of the business management. In this way, it is hoped that business managers will have a better understanding on budgeting and planning issues with more activity-based view.