What is a disadvantage of activity-based budgeting?

A disadvantage of activity-based budgeting is that it is difficult to implement. This approach requires a thorough understanding of the different activities performed within the organization and how these activities contribute to overhead costs. It often demands significant time and resources to collect and analyze relevant data. Because it shifts the focus from traditional budgeting methods to analyzing activities' costs, the complexity can be daunting for managers who are used to simpler, less detailed budgeting processes. This complexity can lead to challenges in training staff, potential resistance to change, and difficulties in gaining consensus on budget allocations.

In contrast, other options highlight features that are generally seen as advantages rather than disadvantages. For example, activity-based budgeting tends to lead to more accurate budgets by aligning expenses closely with the activities that drive those costs, and it encourages better resource use by identifying which activities are most effective. Additionally, while it may provide a clearer picture of budget allocation, it may not be easily understood by all managers, particularly those unfamiliar with the intricacies of activity-based costing.