Activity-based budgeting focuses on the cost of activities and tasks within an organization. It involves analyzing the costs associated with different activities and allocating resources based on their requirements and priorities. The first step in Activity-Based Budgeting is identifying all the activities that take place within the organization. Activities can be operational (e.g., manufacturing a product, processing orders) and non-operational (e.g., administrative tasks, customer service). Once activities are identified, the next step involves analyzing the costs associated with each activity. This includes direct costs (such as raw materials and labor) and indirect costs (such as overhead expenses like utilities, rent, and administrative salaries). Costs related to similar activities are grouped into cost pools.