Week 3 Assignment 2 - David A Givens III Government...

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David A. Givens III Government Budgeting Systems Instructor: Mary Cline Week 3 Assignment 2
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1 When it comes to the public budgeting process Activity-Based Costing and Net Present Value are two advanced tools of the trade. Although they represent the upper echelon of tools utilized within public budgeting systems they are still just two of many that can be used. In the following paragraphs these two terms will be defined and their strengths and weakness will be examined. Examples will also be given as well as comparisons to other tools. There are several definitions of Activity Based Costing (ABC) that can be used, but for the purpose of this paper a scaled down simplistic version will be presented. ABC only assigns costs to the activities that that are directly related to the overhead. It then assigns the cost of those activities only to the products that actually create the demand for said activities. Basically, it is a way to assign costs based on the amount of resources a product or service consumes. An example for a small local airline is listed below: Stage 1-Divide services into activities and determine cost driver rates. Cost driver rates are calculated by dividing total annual cost by total level of cost driver.
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