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In: Accounting

The recent COVID-19 outbreak has business owners and managerial accountants rethinking how to manage company spending...

The recent COVID-19 outbreak has business owners and managerial accountants rethinking how to manage company spending and income. They are realizing that creating and sticking to a budget is more important than ever. Zero-based budgeting gives every dollar a purpose and avoids wasting money which is helpful when a company’s finances are fragile.

In your initial discussion posting include the following about zero-based budgeting:

Discuss how zero-based budgeting is used to withstand volatility as businesses experience COVID-19.
How will zero-based budgeting withstand disruptions in production and revenues?
Why does zero-based budgeting lead to more accurate forecasting?

Solutions

Expert Solution

The recent outbreak of COVID-19 has business owners & managers rethinking as how to manage company's spending and income for the year 2020 and what could be better than applying Zero Based Budgeting (ZBB), which starts from Zero and calls for a justification of old recurring expenditure and incurring of anynew expenditure..

In the current scenario of COVID pandamic the world economy has suffered a set back & businesses being the backbone of an economy has also suffered tremendously 7 looking to the rising number of cases the future of business is uncertain.

Under these volatile conditions those businesses will thrive which adapts to the changing situation and ZBB is an important tool in the hands of businesses which will help them survive.

Lets take for example a business unit could curtail overhead expenditure due to the facility of "work from home" provided to its employees during COVID-19 pandemic, similarly companies could curtail costs relating to R & D could be reduced tremendously. Other expenses like advertisement costs, sales promotion expenses could be reduced during these times and the savings achieved due to curtailment of these costs could be used tp pay off the accounts payable, thereby increasing the relationship with the suppliers, or expanding the sales team toolboxes to take advantage of disruptions in competitors supply chain.

With respect to disruptions in production and revenues, lets say a business unit of a company is dealing in specific "Premium Product line", but due to the outbreak of COVID-19 it was observed from the sales data of the company that majority of the customers shifted from the premium product to the basic ones. So here the budget allocation should be shifted from the premium product line to the basic line & production of the premium product should be kept on hold till the market conditions stabalize.

So we can say that ZBB can lead to more accurate forecasting because these budgets change with time, they are usually short term & helps companies to quickly change gears & take advantage of the next growth cycle.


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