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Compare an operating to an activity-based budget

How does management use an operating budget?

How do they use an activity-based budget?

What are the similarities and differences between these types of budgets?

Solution Preview

An operating budget is "one that embraces the impacts of operating decisions. It contains forecasts of sales, net income, 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

In a 383 word cited solution, the activity-based budget begins with a different concept. It is explained and then contrasted to the operating budget which is more common and easier to understand.