Flexible budgeting and variance analysis in an activity-based costing environment

A comment is given on flexible budgeting and variance analysis in activity-based costing. It is believed that the basic framework of flexible budgeting and variance analysis continue to be relevant for organizations which have adopted activity-based costing (ABC), and that ABC increases the importance of flexible budgets and variance analysis for cost control through the use of more meaningful cost drivers and more homogeneous activity cost pools. It is argued that for cost control and performance evaluation, the distinction between variable and fixed activity costs for a particular period remains useful. Under one proposal, flexible budgets are formulated for each activity using the cost driver for that activity. Costs which vary relative to the cost driver for the period under consideration are flexed for changes in the quantity of the cost driver.