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    Comparison of operating vs activity based budgeting

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    How does management use an operating budget? How do they use an activity-based budget? What are the similarities and differences between these two budgets?

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    Solution Preview

    An operating budget is "one that embraces the impacts of operating decisions. It contains forecasts of sales, net income, the cost of goods sold, selling and administrative expenses, and other expenses. The cornerstone of an operational budget is forecasted sales. Therefore, the sales budget is the basic building block for the operational budget. Once the sales budget is prepared, then the production budget can be formulated. The operational budget also consists of the ending inventory budget, direct material budget, direct labor budget, factory overhead budget, selling and administrative budget, and budgeted income ...

    Solution Summary

    The cited solution explains and compares the two types of budgeting formats, and then provides information about the effectiveness of both.