Question

Define Zero Base Budgeting. What are the steps involved in this?

Answer 1

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a "zero base," and every function within an organization is analyzed for its needs and costs.

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Answer 2

Answer:

Explanation:

Zero-based budgeting (ZBB) is a budgeting process that asks managers to build a budget from the ground up, starting from zero. The idea is to divide organization programs into “packages” and then to calculate costs for each package from the ground up (Zero). ... Moves the organization away from incremental budgeting.

ZBB moves the organization away from incremental budgeting.

Under ZBB the last year’s budget is no longer the starting point. Starting point becomes zero and past patterns of spending are no longer taken as a given.

The organization is divided up into “decision units” for this to the lowest level at which budget decisions are made. For example, the Telephone Marketing division of Marketing Department.

Always there will three decision-packages for each decision-unit.

However, the number could be five, seven, ten or higher.

Three elementary categories of decision-packages are Base package, Current service package, Enhanced package.

   Base Package in Zero-Based Budgeting

   Base Package shows the minimum level of funding required to keep any “decision units” viable and operational. This allows managers to understand the minimum budget required for running any program/unit/department.

   Current Service Package in Zero-Based Budgeting

   Current Service Package finds what are the funding needs to keep the “decision units” at the current level of production/service output. Clearly, this indicates the funding requirements for keeps this as they are in any program/unit/department.

   Enhanced Package in Zero-Based Budgeting

   If an organization wants to improve any “decision units”, ZBB shows the funding requirements for that.

By starting the budget of each package from base zero, budgeters calculate costs for each budget period rather than merely the adjustments to an existing conventional budget.

Under Zero-based Budgeting the decision packages as said earlier, are ranked in order of importance.

Then funds are allocated to each decision package according to its relative rank.

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