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CONTENT
Introduction Features Stages of ZBB Advantages Disadvantages Managerial accounting Relationship with managerial accounting Companies using ZBB
INTRODUCTION
Zero based budgeting is a method of budgeting where all activities are re-evaluated each time budget is set.
FEATURES
All budget items, both old and newly proposed, are considered totally fresh. Decision packages are ranked in order of priority. Amount to be spent on each budget item is to be totally justified. Department objectives are linked to corporate goals. The main stress is not on how much a department will spend but on why it needs to spend. Managers at all levels participate in a zero based budgeting process.
STAGES OF ZBB
The stages of zero based budgeting are: Corporate objective should be established. Identification of decision units. Analysis & documentation of each unit. Development of decision package. Review and ranking of decision packages by heads.
ADVANTAGES
Efficient allocation of resources, as it is based on needs and benefits. Drives managers to find cost effective ways to improve operations. Detects inflated budgets Increases communication and coordination within the organization. Identifies and eliminates wasteful and obsolete operations.
DISADVANTAGES
It is time-consuming and exhaustive. Mere increases paper work. Limited use in profit-making organization. Forced to justify every detail related to expenditure. ZBB must be clearly understood by managers at various levels to be successfully implemented. In a large organization, the volume of forms may be so large that no one person could read it all.
MANAGERIAL ACCOUNTING
Accounting information that managers use for decision making .
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