Question

Evaluate zero base budgeting including advantages and disadvantages and behavioral issues that may arise as part of the annual budgeting process

Answer 1

Explanation:

Definition :
Zero cost budgeting refers to the process of budgeting the expenses for the financial year by starting from zero base each year rather than taking previous year budget as template.

In zero based budgeting each expenses is justified before adding it to budget even if it is old or reccuring expense.

Advantages of zero based budget are:

1. It is independent from previous year budget.
2. Zero based budget is more flexible.
3. It has advantage of discipline execution of budget throughout the year.

Disadvantage

1. It is more time consuming as manager has to explain all the operating expenses.
2. The reccuring expenses are to be regularly checked in zero based budget where as they may not be examined for year in traditional budgeting.
3. Long-term thinking may be ignored in zero based budgeting and hampering future growth of the entity.
   

Behavioural issues that may arise as a part of budgeting process are where the organisations goal are not same as of the manager, the manager will put least effort and it will affect the actual performance of the organisation and the achievement of organisational goals is influenced as the managers are not motivated at all.