A method of budgeting in which all expenses must be
justified for each new period. Zero-based budgeting starts
from a "zero base" and every function within an
organization is analyzed 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.
Zero-based budgeting is a technique of planning and
decision-making which reverses the working process of
traditional budgeting. In traditional incremental
budgeting, departmental managers justify only increases
over the previous year budget and what has been already
spent is automatically sanctioned. No reference is made to
the previous level of expenditure. By contrast, in zero-
based budgeting, every department function is reviewed
comprehensively and all expenditures must be approved,
rather than only increases. Zero-based budgeting requires
the budget request be justified in complete detail by each
division manager starting from the zero-base. The zero-base
is indifferent to whether the total budget is increasing or
zero based budgeting starts from 'scratch' where in each
unit of expenditure needs to be justified for its
existence/continuance for each financial year.Prior
existence of any scheme does not ensure continuance of the
same in the next financial year.In other words each scheme
begins from zero base level.
Zero based budgeting enforces to review the expenditure
periodically as the traditional budgeting system may not be
relevant in the era of high technological advancements with
very high levels of automation resulting in better
utiliation, higher production, better quality , longer life
of the spares ,all with less number of workmen. Hence the
ZBB exercise would bring out unwanted fats remaining
unnoticed to the fore and ensure the organisation stays
trim in this competitive business environment. But the
sucess or the failure would depend upon the cooperation
extended by all the functions of an organisation.
Justifing budgeted expenditure in the practice of perfomance to be acheived without reference to perexisting plans or achievement . ZBB rests on the philosophy that all spending need to be justified . each part of a company will start from a zero base each year and has to justify the budget it requires. top managment will only allow the budget when it convinced that the proposed activities represent ' value for money'.and all topics start with the zero point.
Based on every company it provides the expenditrue on every
individual, like it allocates some expenses on every
associate. If we see in the software companies many of
associates will be moving onsite to offshoore, if the
associate is not allocated to any where but still the
associate is salaried then it can be know a Zero Based
Is This Answer Correct ?
Other Accounting AllOther Interview Questions
What type of report and accounts should a company prepare?
What will be the entry for transfer of fixed deposit amount
to their current a/c. (ie. if we hav a FD of Rs.600000 with
the bank, we need to close the FD and transfer the amount
to the current Account.
kindly provide me the entry for this.