Question

Why would a company use zero-based budgeting, given that it requires more time and effort from managers throughout the company?

Answer 1

Zero based budgeting is the Method of making budgets in which each cost must be justified and without using any existing base so it is need based.

Zero based budgeting is done for the following reasons

1. Since new information is collected , it reflects the changes in market , resulting in a more accurate budget creation.

2. Instead of using it's own prior budget as a basis , taking information from market (competitor, consumer) can help company in identifying it's weakness and gives a new perspective.

3. It involves all the stakeholders, competitors, consumers , market so creates a comprehensive picture.

4. Knowledge and understanding of organization will be increase.

5. Leads to increased staff involvement at all levels.

6. Help in identifying and discontinuation of obsolete processes. Because managers have to justify each and every cost.

7 leads to enhanced efficiency because of choosing best cost option.

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