The use of traditional budgets is not consistent with the changes and developments accompanying the contemporary manufacturing environment and in a manner that negatively affects the profitability of the institutions and their competitiveness, so there is a need to use the strategic approach to manage the costs of these institutions in a more efficient and effective way, and the activity-based budgeting (ABB) technique is one of Important techniques that give more accurate and objective estimates than the estimates given by traditional budgets. The activity-based budget reflects the operations and activities that must be derived from the expected activities, the organization’s operations, and the workload. It is based on the activities. It is used to indicate the nature of the relationship between the production units and the activity required to produce these units to develop detailed estimates of the activity requirements or requirements of the proposed production plan. Therefore, it must be kept up with Management needs of information, where the application of this system was accepted and welcomed by many institutions, due to the quality of the information it provides, so it has become a tangible development on the way to proper and accurate determination of the cost of products or services and leads to a more accurate allocation of the elements of indirect costs, especially since the existing system for allocating indirect costs leads to the absence of a causal relationship between the cost of the product and the resources used.

Theoretical Framework

Budgeting Technique based on activities and its relationship to the profitability and competitiveness of the economic institution is discussed here under this topic, further dividing into subheadings below for a clear picture to be portrayed.

Definition and Importance

Activity-Based Budgeting (ABB) Technique: Activity-Based Budgeting (ABB) technique is defined as a quantitative expression of the activities practiced by the organization that reflect the forecast of business and other financial requirements to achieve goals to change the plan to improve performance and make improvements in efficiency, effectiveness, quality flexibility, production cycle objectives, and change in service levels [1].

Through this technology, the products or services that will be produced or provided are determined, and then the necessary activities are determined for the products or services that have been identified, and finally, "the resources necessary to perform the specific activities are determined in order to help meet the customer's needs and requirements, whether they are primary or secondary [2].

This technology reflects the activities and processes and not resources such as salaries and equipment, as the necessary resources must be derived from the expected activities, operations of economic units and workload, and the workload is simply the number of units for the necessary activity, and the budget should be based on future workloads to meet the requirements of customers, goals and strategies for the economic unit, departments, and changes in the organization’s operations [3].

The activity-based budgeting (ABB) technique is based on activities. The relationship between the quantity of units produced and the activity required to produce these units is used to develop detailed estimates of the activity requirements or requirements of the proposed production plan. Activity-based budgets (ABB) have two main importance, as follows [4]:

• It identifies cases in which new production plans (physical capacity and capacity in human resources) are required to provide support and service activities in economic units

• It represents a more accurate way of planning future costs

It is clear from the foregoing that the activity-based budget helps to know the capabilities and energies available to the economic unit, to achieve the set goals sought by the economic unit, and to feel all individuals within the economic unit that they have a contribution to preparing the budget and then contribute to achieving the set goals, and to identify strengths and weaknesses. In the economic unit, and finding new ways and means to achieve competitive advantage, such as through defining a cost leadership strategy or a differentiation strategy as a basic pillar in providing products or services.

Activity-Based Budget (ABB)

Stages of Preparing: There are two main stages for the preparation of the activity-based budget (ABB), and these two stages can be clarified through the following:

• The stage of preparation for preparing the budget based on activities (ABB): Before the budget is prepared on the basis of activities, the industrial establishment must take a set of steps, as follows [5]: 

• Activity-Based Budget Preparation (ABB): The activity-based budget is an advanced stage of traditional budget preparation, as activities-based budget preparation includes the following steps [6]: 

• Developing the industrial enterprise strategy

• Forecasting the work required for the industrial establishment

• Stabilizing the level of desired activities in the industrial establishment

• Determine the main and auxiliary activities in the industrial enterprise

• Estimating the volume of production and sales for the next period in the industrial establishment

• Forecasting the needs of the activities in the industrial establishment

• Calculating the resource needs in the industrial establishment

• Determine the actual resources equipped in the industrial establishment

The activity-based budgeting (ABB) technique emerged as a result of factors and justifications, the most important of which is the departments’ needs for detailed, accurate and appropriate information on the cost of products for the purpose of helping them make rational decisions. The systems in place to suit the needs and aspirations of economic units, and the distortions arising from the distribution of indirect industrial costs on a single basis, which have become inappropriate and far from logic and reality, were one of the reasons for searching for more accurate methods [7]. 

It works on the activity-based budgeting (ABB) technique to identify important activities and allocate indirect costs in the industrial establishment for each activity based on the resources used by the economic unit, as the indirect costs are distributed to pools of activity costs in the industrial establishment. In the second stage, the costs of these activities are allocated to the products according to the number of activities necessary to complete them in order to improve the strategy and operations of the industrial enterprise in a manner consistent with the different environmental requirements [8].

Obstacles that Limit the Effectiveness of Activity-Based Budget (ABB)

Despite the many advantages of budgets, especially those budgets prepared on the basis of activities in industrial establishments, there are some potential problems or weaknesses in budgets, the most important of which are summarized as follows [4]: 

• Activity-Based Budget (ABB) reflects a hierarchical method of organization, a method that does not meet the need for flexibility and adaptation to the changing conditions of the industrial enterprise, i.e. focusing on the top-to-bottom hierarchy in this enterprise

• Activity-Based Budget (ABB) focuses on control such as achieving the desired, desirable, or targeted budget, rather than focusing on control, in the sense of holding the industrial enterprise accountable for achieving its strategic objectives

• Activity-Based Budget (ABB) leads to resource allocations being decided according to policy and not strategy, meaning that the political authority in the economic unit determines resource allocations instead of strategic needs that determine the traditional budget during the specified accounting period

The traditional methods of planning have become inefficient and ineffective under the strategic approach to management, as they do not provide useful information for the purpose of evaluating the adequacy and effectiveness of implementing competitive strategies in a way that can achieve the objectives of the industrial enterprise effectively and efficiently and in harmony with the vision, mission and strategy of this institution [9].

Measuring the Strategic Impact of Activity-Based Budget (ABB) on Profitability and Competitiveness:

The strategic impact of activity-based budgeting (ABB) is reflected in the following:

• Improving profitability: Profitability is measured by means of a set of indicators that show the profitability that the activity-based budget (ABB) adds to the industrial enterprise, as well as a statement of the impact on operating profit. Low profitability is one of the financial indicators of the weakness of the competitive advantage of the economic unit or reflects its increase. As a result of the current high competitiveness of the economic unit, which aims to increase the market share in a market that is itself heading towards decline, and the reason for the indicators of this measure is that they do not show the level of future profitability, and it is measured by a set of financial indicators, which are as follows [10]: 

• Increasing the competitiveness: The competitiveness of the company through its product, which can be measured through a set of financial and non-financial indicators, which together constitute indicators of the critical success that can be achieved through the pursuit of competitive strategies, which include financial indicators, customer indicators, internal operations indicators, and learning and development indicators. And innovation, and the competitiveness of the industrial enterprise must target a set of desirable criteria in order to provide the greatest value to the customer in order to obtain his satisfaction and loyalty, which is that the advantage provides a benefit of high value to the target customers, in addition to the advantage being transferable and visible or perceived by the customer [11]

• Growth component: It is measured by stating the increase in revenues minus the increase in costs.

• Price recovery component: This component measures the change in revenues and costs as a result of activity-based budget planning (ABB)

The use of contemporary cost technologies, including activity-based budgeting (ABB), helps reduce costs, increase the market share of the product, and meet the needs and desires of customers, thus achieving their satisfaction. Achieve competitive advantage, increase profits for the industrial enterprise, and increase economic growth to achieve economic development for the country [12].

Research Problem

Iraqi industrial companies suffer from many problems, the most important of which is the low level of profitability as a result of low financial performance and the failure to achieve the objectives required for this performance efficiently. On the other hand, the Iraqi companies do not apply modern cost management techniques, the most important of which is the activity-based budgeting technique. We can express this problem by asking the following: What is the strategic impact of (ABB) technology on profitability and competitiveness?

Research Importance

The importance of the research came from the budget technique on the basis of activities that show detailed estimates of the activity requirements of the proposed production plan for the organization, as well as working to avoid the shortcomings of traditional costing systems and keeping up with management needs of information, a more accurate allocation of indirect costing elements, especially since the traditional system of costing is not Direct leads to the absence of a causal relationship between the cost of the product and the resources used, in a way that helps in improving profitability and increasing the competitiveness of industrial enterprises.

Research Objectives

The research aims to address the theoretical framework of the budgeting technique based on activities and to demonstrate its strategic impact on both profitability and competitiveness, in a way that helps in improving the performance of the industrial enterprise in general by reducing cost and improving quality through detailed estimates of the activity requirements of the proposed production plan for the enterprise, and work To avoid the shortcomings of traditional costing systems, to keep up with management's information needs, and to provide better products to customers than what competitors have provided in the competitive market.

Research Hypothesis

The research is based on the following hypothesis: The application of activity-based budgeting (ABB) technology by industrial enterprises helps in improving profitability and increasing competitiveness in a manner that is compatible with the needs of the advanced industrial environment.

Research Community and Sample

The current research community is represented by the Iraqi industrial companies, while the sample is represented by the General Company for Glass and Refractory Industry for the data of the fiscal year 2021. 

Measuring the Strategic Impact of ABB Technology on Profitability and Competitiveness in the General Company for Glass and Refractories

An Introductory Overview of the General Company for Glass and Refractories: The General Company for Glass and Refractories is an Iraqi governmental company specialized in the production of glass, refractories and ceramics. The company was established in 1971 in the city of Ramadi. The company produces returnable and non-returnable glass containers and food containers. The company sells its products inside the country only as a result of the lack of capabilities necessary to export the products outside the country, and the company invests in the flat glass industry, and the company believes, through its management, in maintaining progress, an association of innovation that urges professionalism, honesty and integrity that encourages and takes pride in what it offers The association is the ultimate goal, and the company aims to maintain complete customer satisfaction, build expertise and enhance the skills and knowledge of the cadres of the country while continuing to apply the high standards of the glass and refractory industry. The company also aims to provide industrial leadership and guidance, education and knowledge, promote the use of reinforced glass and glass products, provide a forum for the exchange of ideas through its divisions, and provide a unified voice on issues affecting glass and its industry.

Classification of Activities related to Production Processes and the Method of Manufacturing Glass and Refractories according to ABB Technology in Research Sample

The activities related to production processes and the method of manufacturing glass and refractories in the research sample can be explained through the following:

• The activity of mixing and shipping raw materials: the basic raw materials are transported, which are sand, soda ash and limestone, and each raw material is kept in storage towers separated from each other, and the raw materials are emptied from these towers, mixed, and then transferred to the direct feeding tank.

• Raw material smelting activity: This shipment of raw materials is transferred to the melting furnace, where it is melted at a temperature of 1550 degrees Celsius. Melting furnaces are mostly heated using natural gas.

• Floating activity in the molten tin furnace: After the molten glass leaves the smelting furnace, it is poured into a basin containing liquid tin to form a layer of glass on the surface of the liquid tin so that the glass panels are pulled out by pressure.

• Covering activity: This process makes the surface of the glass less absorbent of heat or glare from the outside, and allows light to pass through this surface at the same time. This process takes place on the glass while it is still hot.

• Annealing activity: the glass comes out of this stage in the form of a continuous strip, and it is transported by conveyor belts to the annealing tunnel to rid it of mechanical stresses, and the temperature of the glass strip after this process decreases to room or atmosphere temperature.

• Cutting and trimming activity: After completing the annealing process, the surface of the glass is subjected to examination using the optical laser system, and then these pieces are sorted and graded into levels according to quality, and then placed in stacks in preparation for shipment to customers.

Preparing the budget based on the activities of the General Company for Glass and Refractories and using them to Improve Profitability and Increase Competitiveness

The preparation of the budget on the basis of activities in the General Company for Glass and Refractories requires preparation for the preparation of the budget and then the preparation of the budget, and before the budget is prepared on the basis of activities, the company must develop a strategy, forecast the required work, determine the estimated cost on a scientific basis, and fix the level of desired activities. Clarification of the estimated cost in the General Company for Glass and Refractories during the year 2021 through table 1.

Table 1 shows the estimated cost in the General Company for Glass and Refractories during the year 2021, as the estimated cost during the first quarter of this year was (3908284779) dinars, and during the second quarter it was (4514068886) dinars, while during the third quarter of this year (31296606559) Dinars, while during the fourth quarter it was (4950057610) dinars, and thus the estimated cost during the year was (44669017834) dinars.

Details of the estimated indirect costs of the General Company for Glass and Refractories during the year 2021 can be clarified through table 2.

Table 2 shows the details of the estimated indirect costs in the General Company for Glass and Refractories during the year 2021, as the estimated indirect costs during the first quarter of this year were (210376973) dinars, and during the second quarter they were (242985,402) dinars, either during the third quarter of This year (1684648311) dinars, while these costs in the research sample company during the fourth quarter were (266454006) dinars, and thus the estimated indirect costs during the year were (2404464692) dinars.

The budget can be prepared on the basis of activities (ABB) in the General Company for Glass and Refractories during the year 2021, as shown in the following table 3.

Table 3 shows the budget based on activities (ABB) in the General Company for Glass and Refractories during the year 2021, where the cost of the activity of mixing and shipping raw materials during the first quarter of this year was (1172485434) dinars, and it was during the second quarter (1354220666) dinars, either During the third quarter of this year (9388981968) dinars, while during the fourth quarter it was (1485017283) dinars, and thus the cost of this activity during the year was (13400705350) dinars. The cost of the activity of smelting raw materials during the first quarter of this year was (781656955.8) dinars, and during the second quarter it was (902813777.2) dinars, either during the third quarter of this year (6259321312) dinars, while during the fourth quarter it was (990011522) dinars, and thus the cost of this activity during the year was (8933803567) dinars. 

Table 1: The estimated cost of the General Company for Glass and Refractories during the year 2021

Source: Data of the General Company for Glass and Refractories during the year 2021.

Table (2): Details of the estimated indirect costs in the General Company for Glass and Refractories during the year 2021

Source: Data of the General Company for Glass and Refractories during the year 2021.

Table (3): Activities-Based Budget (ABB) in the General Company for Glass and Refractories during the year 2021

Table (4): Profitability in the General Company for Glass and Refractories during the year 2021

Table (5): Some indicators of competitive advantage in the General Company for Glass and Refractories during the year 2021

The cost of floating activity in the molten tin furnace during the first quarter of this year was (468994173.5) dinars, and during the second quarter it was (541688266.3) dinars, while during the third quarter of this year it was (3755592787) dinars, while during the fourth quarter it was (594006913.2) Dinars, and thus the cost of this activity during the year was (5360282140) dinars. The cost of coverage activity during the first quarter of this year was (312662782.3) dinars, and during the second quarter it was (361125510.9) dinars, while during the third quarter of this year it was (2503728525) dinars, while during the fourth quarter it was (396004608.8) dinars. This activity during the year was (3573521427) dinars. The cost of annealing activity during the first quarter of this year was (429911325.7) dinars, and during the second quarter it was (496547577.5) dinars, while during the third quarter of this year it was (3442626721) dinars, while during the fourth quarter it was (544506337.1) dinars. Thus, the cost of This activity during the year was (4913591962) dinars. Finally, the cost of the cutting and trimming activity during the first quarter of this year was (742574108) dinars, and during the second quarter it was (857673088.3) dinars, either during the third quarter of this year (5946355246) dinars, while during the fourth quarter it was (940510945.9) dinars, and so the cost of this activity during the year was (8487113388) dinars.

The profitability of the General Company for Glass and Refractories during the year 2021 can be clarified by dividing the net income by the sales revenue, as shown in table 4.

Table 4 shows the profitability in the General Company for Glass and Refractories during the year 2021, where the profitability during the first quarter of this year was (16.43%), and it was during the second quarter (30.05%), or during the third quarter of this year (21.76%), While it was during the fourth quarter (12.63%), and thus the profitability during the year was (21.35%), and it is noted that (ABB) technology has given detailed data on profitability in each quarter of the year.

Some indicators of competitive advantage in the General Company for Glass and Refractories can be clarified during the year 2021, such as the return on assets, the ratio of quality costs to sales, the number of defective units, the reduction in manufacturing time, the reduction in delivery time, the number of customer complaints, and the number of new programs used, as shown in table 5.

Table 5 shows some indicators of competitive advantage in the General Company for Glass and Refractories during the year 2021, as the return on assets during the first quarter of this year was (6.78%), and during the second quarter it was (5.56%), or during the third quarter of this year (7.89%), while it was (4.22%) during the fourth quarter, and thus during the year it was (6.11%). The ratio of quality costs to sales during the first quarter of this year was (2.15%), and it was during the second quarter (4.25%), either during the third quarter of this year (6.06%), while it was during the fourth quarter (3.13%), and thus During the year it was (3.90%). The number of defective units during the first quarter of this year was (12) units, and during the second quarter it was (8) units, while during the third quarter of this year it was (24) units, while during the fourth quarter it was (18) units. During the year it was (62) units. The reduction in manufacturing time during the first quarter of this year was (2.25%), and it was during the second quarter (3.50%), either during the third quarter of this year (1.15%), while it was during the fourth quarter (2.45%), and thus during the research year was (2.34%). The reduction in delivery time was during the first quarter of this year (0.85%), and it was during the second quarter (1.20%), either during the third quarter of this year (2.67%), while it was during the fourth quarter (1.98%), and thus it During the research year, it was (1.68%). The number of customer complaints during the first quarter of this year was (2) complaints, and during the second quarter (8) complaints, while during the third quarter of this year (6) complaints, while during the fourth quarter (0) complaints, and thus during the research year was (16) complaints. The number of new programs used during the first quarter of this year was (4) program, and during the second quarter (9) program, while during the third quarter of this year there were (2) program, while during the fourth quarter there were (6) program. During the research year, there were (21) program.

Accordingly, it can be said that the application of activity-based budgeting (ABB) technology by industrial institutions can help improve profitability and increase competitiveness in a manner that is consistent with the needs of the advanced industrial environment, by providing detailed indicators related to profitability and competitiveness, and thus taking the necessary decisions to improve these indicators as well About helping to improve the performance of the institution in general, and thus the research hypothesis has been proven.

A number of conclusions were reached, as follows:

• Activity-Based Budgeting (ABB) technique reflects the activities practiced by the organization in a quantitative manner that reflects forecasting of business and other financial requirements to achieve goals to change the plan to improve performance and make improvements in efficiency and effectiveness

• The activity-based budget helps to know the capacities and energies available to the economic unit, to achieve the set objectives pursued by the economic unit, and to make all individuals within the economic unit feel that they have a contribution to the preparation of the budget

• It works on activity-based budgeting (ABB) technology to identify important activities and allocate indirect costs in the industrial enterprise for each activity depending on the resources used by the industrial enterprise

• The traditional methods have become inefficient and ineffective under the strategic approach to management, as they do not provide useful information for the purpose of evaluating the adequacy and effectiveness of implementing competitive strategies in a way that can effectively achieve the goals of the industrial enterprise

• Profitability is measured by means of a set of indicators that show the profitability that ABB technology adds to the enterprise, as well as a statement of the impact on operating profit, as low profitability is one of the financial indicators of the weak competitive advantage of the enterprise

• The competitiveness of the industrial enterprise must target a set of desirable criteria in order to provide the greatest value to the customer in order to obtain his satisfaction and loyalty, in addition to the advantage being transferable and visible or perceived by the customer

Recommendations

In light of the conclusions reached, the following can be recommended:

• Reconsidering the costing systems applied in Iraqi industrial establishments with the need to apply contemporary costing techniques, the most important of which is activity-based budgeting (ABB) to improve profitability and achieve competitive advantage

• Observing the sound scientific foundations in preparing the implementation of budgets and following up their implementation by the industrial establishment through the clear and comprehensive definition of the objectives to be achieved, as well as the detailed policies and programs that ensure putting the plans into practice

• Clearly defining the operational and strategic objectives that the industrial establishment intends to achieve, and finding programs and other necessary requirements that ensure harmony and compatibility between these objectives and to ensure the achievement of all of them

• The need to use modern foundations in preparing budgets, by following the basis of activities, which requires conducting a comprehensive analysis of the activities carried out in the company and studying them for each of its centers, as well as identifying cost directives and providing the requirements for that

• Continuing to follow up on the implementation of the plans set and to conduct effective monitoring for the purpose of rationalizing the use of available resources. In addition to conducting a comprehensive performance evaluation of all activities carried out for the purpose of verifying the effectiveness and adequacy of the use of resources

Training individuals working in the industrial establishment to apply the activity-based budget (ABB) to improve profitability and achieve competitive advantage, with the need to clearly define the powers and authorities for all departments and divisions that make up the organizational structure.

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