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Zero Based Budgeting - Budgetary Control, Cost Accounting Video Lecture | Cost Accounting - B Com
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FAQs on Zero Based Budgeting - Budgetary Control, Cost Accounting Video Lecture - Cost Accounting - B Com
| 1. What is zero-based budgeting? |  |
Ans. Zero-based budgeting is a budgeting technique where every expense must be justified and approved for each new period, starting from a zero base. It requires organizations to create budgets from scratch, rather than simply adjusting previous budgets. This approach ensures that all expenses are carefully evaluated and aligned with the organization's goals and priorities.
| 2. How does zero-based budgeting help with budgetary control? | |
Ans. Zero-based budgeting enhances budgetary control by closely monitoring and scrutinizing all expenses. Since every expense must be justified, it eliminates unnecessary or ineffective expenditures, allowing organizations to allocate resources more efficiently. This control helps prevent overspending and promotes a more disciplined approach to budgeting.
| 3. What is the role of cost accounting in zero-based budgeting? | |
Ans. Cost accounting plays a crucial role in zero-based budgeting by providing accurate and detailed information about the costs associated with various activities, products, or services. It helps identify cost drivers, analyze cost behavior, and determine the most cost-effective allocation of resources. Cost accounting data is essential for making informed decisions and setting realistic budgets in a zero-based budgeting approach.
| 4. How does zero-based budgeting differ from traditional budgeting methods? | |
Ans. Zero-based budgeting differs from traditional budgeting methods in several ways. Unlike traditional budgeting, which typically starts with the previous year's budget as a base and makes incremental adjustments, zero-based budgeting starts from scratch and requires justification for every expense. Traditional budgeting assumes that previous spending was appropriate, while zero-based budgeting challenges every expense, promoting a more thorough evaluation of resource allocation.
| 5. What are the benefits of implementing zero-based budgeting? | |
Ans. Implementing zero-based budgeting offers several benefits. It forces organizations to reevaluate their priorities, ensuring that resources are allocated to activities that create the most value. It promotes cost-consciousness, reduces waste, and eliminates unnecessary spending. Additionally, zero-based budgeting encourages a more participative budgeting process, involving various stakeholders in the decision-making process. Overall, it leads to improved financial control, increased transparency, and a more efficient use of resources.
Text Transcript from Video
you
zero based budgeting is starting from
zero and justifying each cost element of
a budget all activities are evaluated
each time a budget is set this type of
budget is suitable for fast changing
businesses when budgeting for research
and development costs and for public
authority organizations such as local
authorities there are four steps to zero
based budgeting step 1 activities are
evaluated step 2 a decision package is
designed for each activity which states
the cost and benefits expected step 3
decision packages are ranked against
each other using cost-benefit analysis
step 4
a combination of decision packages are
selected to matches the funds available
and resources are then allocated to the
various decision packages that have been
approved
a decision package is used to identify
describe specific activities in
zero-based budgeting decision packages
are used to evaluate and rank activities
competing for resources senior
management can then decide whether to
approve the activity decision packages
analyzes costs that can either be built
up from zero or historical cost
information can be used they state the
purpose of the activity and identify
alternative methods of achieving the
same purpose they can be used to assess
the outcome of not doing the activity at
all or performing the activity at
different levels and can be used to
establish measurement of performance for
the activity there are two types of
decision packages available mutually
exclusive packages these contain
different ways of achieving the same
objective and incremental packages these
divide activities into different levels
of activity starting with a base package
which describes the minimum cost and
benefit from the activity and building
incrementally from there
the advantages of zero-based budgeting
is that obsolete activities are
eliminated it's a form of bottom-up
budgeting which can help with motivation
increased involvement of staff from all
levels leads to better communication and
improved understanding designing
decision packages can help a business
better respond to environmental changes
increased knowledge and understanding of
course behavior patterns and the ranking
of decision packages should help with
economic and efficient use of resources
the disadvantages of zero-based
budgeting is the time and cost involved
in its preparation which can lead to the
motivation short term benefits are
emphasized at the cost of long-term
benefits ranking of decision packages is
subjective and can be prone to bias
especially if benefits are qualitative
in nature different activities can be
difficult to rank against each other
you
zero based budgeting is starting from
zero and justifying each cost element of
a budget all activities are evaluated
each time a budget is set this type of
budget is suitable for fast changing
businesses when budgeting for research
and development costs and for public
authority organizations such as local
authorities there are four steps to zero
based budgeting step 1 activities are
evaluated step 2 a decision package is
designed for each activity which states
the cost and benefits expected step 3
decision packages are ranked against
each other using cost-benefit analysis
step 4
a combination of decision packages are
selected to matches the funds available
and resources are then allocated to the
various decision packages that have been
approved
a decision package is used to identify
describe specific activities in
zero-based budgeting decision packages
are used to evaluate and rank activities
competing for resources senior
management can then decide whether to
approve the activity decision packages
analyzes costs that can either be built
up from zero or historical cost
information can be used they state the
purpose of the activity and identify
alternative methods of achieving the
same purpose they can be used to assess
the outcome of not doing the activity at
all or performing the activity at
different levels and can be used to
establish measurement of performance for
the activity there are two types of
decision packages available mutually
exclusive packages these contain
different ways of achieving the same
objective and incremental packages these
divide activities into different levels
of activity starting with a base package
which describes the minimum cost and
benefit from the activity and building
incrementally from there
the advantages of zero-based budgeting
is that obsolete activities are
eliminated it's a form of bottom-up
budgeting which can help with motivation
increased involvement of staff from all
levels leads to better communication and
improved understanding designing
decision packages can help a business
better respond to environmental changes
increased knowledge and understanding of
course behavior patterns and the ranking
of decision packages should help with
economic and efficient use of resources
the disadvantages of zero-based
budgeting is the time and cost involved
in its preparation which can lead to the
motivation short term benefits are
emphasized at the cost of long-term
benefits ranking of decision packages is
subjective and can be prone to bias
especially if benefits are qualitative
in nature different activities can be
difficult to rank against each other
you
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