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Zero Based Budgeting in Managerial Accounting
Written by: Rashid JavedArticle Overview: Zero based budgeting is a budget-planning procedure for the reevaluation of an organization's program and expenditures. It requires each manager to justify the entire budget request in detail and places the burden of proof on the manager to justify why authorization to spend any money at all should be granted.
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Zero Based Budgeting in Managerial Accounting
The concept of zero based Budgeting (ZBB) was introduced in 1960. The concept was initially used for some government and business organizations and more recently has increased attention. Zero based budgeting is a budget-planning procedure for the reevaluation of an organization's program and expenditures.It requires each manager to justify the entire budget request in detail and places the burden of proof on the manager to justify why authorization to spend any money at all should be granted. It starts with the assumption that zero will be spent on each activity-thus the term "zero base". What a manager is already spending is not accepted as starting point. Managers are asked to prepare for each activity or operation under their control a "decision package" that includes an analysis of cost, purpose alternative course of action, measure of performance, sequences of not performing the activity, and benefits. The zero based budgeting approach asserts that in building the budget from zero, two types of alternative should be considered by managers: (1) different ways of performing the same activity and (2) different levels of effort in performing the activity.
Success in implementing zero based budgeting requires linkage of zero based budgeting to the long range planning process, sustained support and commitment from executive management, innovation among the managers who makeup the budget decision packages, sale of the procedure to people must perform the work necessary to keep the concept vigorous.
Sound budgeting procedure should always require a careful evaluation of all operating facts each time the budget is prepared. There fore the zero based budgeting procedure is new and unique mainly in approach rather than in basic planning and control philosophy.
Article Tags: assumption, budget decision, budget request, burden of proof, business organizations, careful evaluation, control philosophy, decision package, different ways, executive management, linkage, long range planning, makeup, management innovation, planning and control, reevaluation, sequences, zero base, zero based budgeting, zero based budgeting zbb
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About the Author: Rashid Javed RSS for Rashid's articles - Visit Rashid's website Rashid Javed is an Asial author. He writes articles about financial and managerial accounting. His work is focused on accounting that is essential for management purposes. http://www.accountingformanagement.com Click here to visit Rashid's website Financial and Cost Statements in Cost Accounting Zero Based Budgeting in Managerial Accounting |
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