Question

You are the CFO of a 400-bed hospital in Texas and having trouble with your bottom line and staying within budget. As part of your continued efforts to train your department directors/ supervisors and board on understanding cost and how it is used in the decision process, you have set up classes to explain major concepts of cost.

Explain the concept of management control and how budgeting is used as part of it.

Describe the concept of zero-base budgeting.

PLEASE USE DETAILS AND EXAMPLES

Explain how benchmarking is performed at the department level.

Answer 1

Management control is a set of rules defined by head of organization to efficiently utilize the available resources and generate the highest optimum value from those resources. It is placed to efficiently carry the operations of company to achieve the organizational goals. Budgeting is a process to project the targets for the upcoming years as per the present and potentials resources. Zero based budgeting is a process to project the targets for the future years without taking the previous data but considering all the available potentiality and market conditions. In Zero based budgeting, this process is applied every year to set the targets. It is time consuming but realistic because It considers the actual market conditions for projection Benchmarking is used to set the targets achieve and meet the industry set targets. Like current ratio of 2:1 is a benchmark for every company but every company may not have that ratio so every company strive to be at least at this as per the industry performance so that company can benchmark or even better than this.