PPT - Zero Base & Performance Budgeting | Cost Accounting - B Com PDF Download

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ZERO BASED BUDGETING
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ZERO BASED BUDGETING
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ZERO BASED BUDGETING
Traditional Budgeting 
Vs.
Zero Base Budgeting 
Basic Difference Traditional Budgeting Zero Base Budgeting
Emphasis It is accounting oriented;
emphasis on “How Much”
It is more decision oriented; 
emphasis on “Why”
Approach It is monitoring towards the  
expenditures
It is towards the 
achievement of objectives
Focus To study the changes in the 
expenditures
To study the cost benefit 
analysis
Communication It operates only Vertical 
communication
It operates in both 
directions horizontally and 
vertically
Method It is based on the extrapolation 
i.e. from the yester figures 
future projections are carried 
out
Its decision package is 
totally
based on the cost benefit 
analysis.
Page 4


ZERO BASED BUDGETING
Traditional Budgeting 
Vs.
Zero Base Budgeting 
Basic Difference Traditional Budgeting Zero Base Budgeting
Emphasis It is accounting oriented;
emphasis on “How Much”
It is more decision oriented; 
emphasis on “Why”
Approach It is monitoring towards the  
expenditures
It is towards the 
achievement of objectives
Focus To study the changes in the 
expenditures
To study the cost benefit 
analysis
Communication It operates only Vertical 
communication
It operates in both 
directions horizontally and 
vertically
Method It is based on the extrapolation 
i.e. from the yester figures 
future projections are carried 
out
Its decision package is 
totally
based on the cost benefit 
analysis.
Definition 
? Zero Base Budgeting has been defined as a planning and budgeting process
required by each manager to:
? Establish objectives for his function.
? Define alternative ways of achieving the objectives.
? Selecting the best alternative so as to achieve these objectives.
? Break that alternatives into incremental levels of efforts.
? Costs and benefits of each incremental levels.
? Describe the consequences of disapproval.
? Zero Base Budgeting is a method of budgeting in which all expenses must be
justified for each new period. Zero base budgeting starts from a ‘Zero-base’ and
every function within an organization is analysed for its needs and costs.
Budgets are then built around what is needed for the upcoming period,
regardless of whether the budget is higher or lower than the previous one.
? ZBB is a technique which complements and links the existing planning,
budgeting and review processes. It identifies alternative and efficient methods
of utilizing limited resources in the effective attainment of selected benefits.
Page 5


ZERO BASED BUDGETING
Traditional Budgeting 
Vs.
Zero Base Budgeting 
Basic Difference Traditional Budgeting Zero Base Budgeting
Emphasis It is accounting oriented;
emphasis on “How Much”
It is more decision oriented; 
emphasis on “Why”
Approach It is monitoring towards the  
expenditures
It is towards the 
achievement of objectives
Focus To study the changes in the 
expenditures
To study the cost benefit 
analysis
Communication It operates only Vertical 
communication
It operates in both 
directions horizontally and 
vertically
Method It is based on the extrapolation 
i.e. from the yester figures 
future projections are carried 
out
Its decision package is 
totally
based on the cost benefit 
analysis.
Definition 
? Zero Base Budgeting has been defined as a planning and budgeting process
required by each manager to:
? Establish objectives for his function.
? Define alternative ways of achieving the objectives.
? Selecting the best alternative so as to achieve these objectives.
? Break that alternatives into incremental levels of efforts.
? Costs and benefits of each incremental levels.
? Describe the consequences of disapproval.
? Zero Base Budgeting is a method of budgeting in which all expenses must be
justified for each new period. Zero base budgeting starts from a ‘Zero-base’ and
every function within an organization is analysed for its needs and costs.
Budgets are then built around what is needed for the upcoming period,
regardless of whether the budget is higher or lower than the previous one.
? ZBB is a technique which complements and links the existing planning,
budgeting and review processes. It identifies alternative and efficient methods
of utilizing limited resources in the effective attainment of selected benefits.
Definition…
? The Objective of Zero Based Budgeting is to “reset the clock” each year.
? The Traditional incremental budgeting assumes that there is a guaranteed
budgetary base-the previous year’ .
? Zero Based Budgeting implies that managers need to build a budget from the
ground up, starting at zero.
? Resources are not necessarily allocated in accordance with previous patterns
and consequently each existing item of expenditure has to be annually re-
justified.
? Purpose - ZBB is to reevaluate and reexamine all programs and expenditures for
each budgeting cycle by analyzing workload and efficiency measures to
determine priorities or alternative levels of funding for each program or
expenditure.
? Through this system, each program is justified in its entirety each time a new
budget is developed