Management Accounting: Zero Based Budgeting Essay

Question:

Discuss about the Management Accounting for Zero Based Budgeting.

Answer:

Introduction

The study has discussed on Purpose of a budget and the various aspects of benefits of budgeting. Some of the other aspects have been further discerned with Budget centres. The report has further given an augmented focus on Zero based Budgeting and the rationale for the implementation of the same.

Budget

Budget is defined as the estimation of cost, revenues, reflecting the future financial goals and conditions over a specific time span. The administrative planning of budget is based on the planning for the quantified objectives, standardising of performance measures and coping with the foreseeable adverse situation (Heinle, Ross and Saouma 2014).

Purpose of a budget

The main purpose of the budgeting has been discerned with forecasting of income and expenditure thereby assessment of profit. Budget also acts as an important tool for decision making and means for monitoring of business performance.

Benefits of budgeting

Some of the main forms of the benefits of budgeting has been identified with, giving control over the money, keeping focused on the money goals, making aware of the various proceedings of money. Some of the other benefits have been further discerned in form of the assisting with spending and savings. It also acts as a forecasting tool and enable in saving of the various types of the unexpected costs (Sandalgaard and Nikolaj Bukh 2014).

Budget period

Various organisations are seen to segregate the funding periods into several periods known as budget period. The budget period is discerned as the time for authorization of the funds awarded and matching of the cost sharing requirement along with notice of grant award.

Budget centres

Budget centre is identified as a service organisation which is established to provide best information for making financial decisions and advance with the strategies and programs. These are further seen to provide comprehensive and streamlined approach to department, school and university for increasing the budgets, forecasts and ensure the stakeholders for efficient use of the resources (Palmer 2014).

Zero based Budgeting

Zero based budgeting is considered as the main method in which the budgeting expenses needs to be justified for each new period. Zero based budgeting needs to start form zero base and every function is seen to work within the organization as per the analysis of the needs and the costs. These types of the budget are then seen to be built for the upcoming period, regardless of increasing or decreasing value than the previous one (Bleyen, Lombaert and Bouckaert 2015).

Rationale for implementing Zero based Budgeting

I would consider implantation of zero based budgeting as this is not seen to be based on the consideration historical data and considers each budget as a fresh period. This type of the budget is also suggested for the systematic method of planning as opposed to simply basing of the decisions on the previous year’s allocation. This form of the budgeting is further seen to be based on the application of the various types of the methods which has been seen to be conducive with nature of the decision of the packages varying with the companies.

Advantages and disadvantages of Zero based Budgeting

The main advantages of the zero based budgeting has been seen with the flexible budgets focused with the operations, lower cost implementation and a more disciplined form of execution process. This is identified to use the managerial tool for effective control of the cost.

However, some of the main drawbacks have been discerned with difference with traditional budgeting and every year this needs to be prepared from the scratch. This type of the budget does not properly examine the legacy costs and economic shock based on the extreme actions taken by the companies. It has been further seen to force the managers to think about every dollar spent in the business, in every financial year (Glass, Stefanova and Prinzivalli 2014).

Recommendation

The main form of the recommendation has been seen with only that organisation in which flexible budgets are focused with the operations. Some of the main form of the recommendation in favour of the implementation of the zero based budgeting has been further seen with tailoring of the discussions input the cost constraints and assists in offsetting of the cost which are as a result of implantation of the new program developments. However, this form of the budgeting process is not recommended for the resource intensive concerns and focusing on long term investment plans such as worker training and research and development.

Conclusion

The report has been able to suggest that the main purpose of the budgeting is forecasting of income and expenditure and monitoring of business performance. The benefits of budgeting has been identified with, giving control over the money, keeping focused on the money goals, making aware of the various proceedings of money. The main advantages of the zero based budgeting has been seen with the flexible budgets focused with the operations, lower cost implementation and a more disciplined form of execution process. However, every year this needs to be prepared from the scratch and it does not properly examine the legacy costs and economic shock based on the extreme actions taken by the companies.

References

Bleyen, P., Lombaert, S. and Bouckaert, G. (2015) ‘Measurement, incorporation and use of performance information in the budget a methodological survey approach to map performance budgeting practices in local government’, Society and Economy, 37(3), pp. 331–355. doi: 10.1556/204.2015.37.3.2.

Glass, V., Stefanova, S. and Prinzivalli, J. (2014) ‘Zero-based budgeting: Does it make sense for universal service reform?’, Government Information Quarterly, 31, pp. 84–89. doi: 10.1016/j.giq.2013.05.022.

Heinle, M. S., Ross, N. and Saouma, R. E. (2014) ‘A theory of participative budgeting’, Accounting Review, 89(3), pp. 1025–1050. doi: 10.2308/accr-50686.

Palmer, J. C. (2014) ‘Budgeting Approaches in Community Colleges’, New Directions for Community Colleges, 2014(168), pp. 29–40. doi: 10.1002/cc.20118.

Sandalgaard, N. and Nikolaj Bukh, P. (2014) ‘Beyond Budgeting and change: a case study’, Journal of Accounting & Organizational Change, 10(3), pp. 409–423. doi: 10.1108/JAOC-05-2012-0032.

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