Which type of budgeting focuses on specific activities that generate costs?

Activity-based budgeting is a budgeting method that prioritizes specific activities that incur costs, linking expenses directly to the actions that drive those costs. This approach enables organizations to allocate resources based on the actual activities necessary for their operations, rather than relying on previous periods' spending or a general overview of costs.

By concentrating on the tasks that lead to expenses, activity-based budgeting provides a clearer understanding of cost drivers and promotes more strategic decision-making. This method empowers management to identify inefficiencies and optimize resource allocation by focusing on activities that add value.

In contrast, incremental budgeting typically adjusts previous budgets based on projected changes, without detailed assessment of underlying activities. Zero-based budgeting requires justifying all expenses from scratch but does not specifically center on activities themselves in the same targeted manner as activity-based budgeting. Traditional budgeting often relies on historical data and may not provide the same level of detail regarding the activities generating costs. Thus, activity-based budgeting stands out as the method that specifically addresses the relationship between activities and costs.