Question

What are the advantages and disadvantages of conventional budgeting versus zero-based budgeting?

Answer 1

Conventional budgeting is a very simple method and its computed on the basis of historical data whereas zero based budgeting will be a complicated method which will be complicated on the basis of the estimated future data and this can only be used in the case of profit centre.

Advantages of conventional budgeting over zero based costing as follows-

A. Conventional budgeting is a simple method of budgeting and it is used by a large number of company.Zero based budgeting is a complex method in nature and adopted by very few companies

B. Conventional budgeting is done for all departments where as zero based budgeting is only limited for the profit centres

C. there is a low cost involvement in preparation of conventional budgeting in comparison to zero based budgeting.

Disadvantages of conventional budgeting are as follows up on zero based budgeting-

A. conventional budgeting is a method based upon historical cost whereas zero based budgeting is based upon futuristic values.

B. Preparation of conventional budgeting will be leading emphasis upon expenditure of the previous year where as zero based budgeting will be considering each item as per the new economic appraisal.

C.zero based budgeting is better in case of cost effectiveness also because the primary purpose is ensuring the cost effectiveness where as conventional budgeting does not encourage cost effectiveness

D.there is a very low level of clarity in conventional budgeting and there is a very high level of clarity in zero based budgeting.

these are the advantages and disadvantages of conventional budgeting vs zero based budgeting.