The document discusses zero-based budgeting (ZBB) and performance budgeting. [1] ZBB requires managers to justify their entire budgets annually instead of relying on previous year spending. [2] Performance budgeting relates inputs and costs to outputs and results. It emphasizes outcomes over expenditures. [3] Both techniques aim to improve efficiency and allocate resources according to priorities, but implementing them can be time-consuming and difficult to apply to all programs.
A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.
The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.
The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
Classification of budget according to Time, Function and Flexibility. Long term budget, Short term budget, Long term budget, Short term budget, Sales budget, Production budget
1. ZERO BASE BUDGETING &
PERFORMANCE BUDGETING
Under guidance of: Presented By:
Dr. Shashi Srivastava Ravi kumar
Roll no. 22
2. Outline of presentation
• ZBB
– Introduction
– Definition
– Traditional budgeting vs. ZBB
– Essential of ZBB
– Preparation of ZBB
– Advantage of ZBB
– Disadvantage of ZBB
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4. Introduction
• ZBB is the latest technique and it has the
increased use as a managerial tools.
• This technique was first used in America in year
1962.
• It start from the ‘scratch’.
• Every year is taken as a new year.
• Zero is taken as base and likely future activities
are decided according to the present situation.
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5. Definition
• “ A planning and budgeting process which require
each manager to justify his entire budget in
detail from ‘scratch’ and shift the burden of
proof to each manager to justify why he should
spend money at all. The approach require that all
activities be analyzed in decision packages, which
are evaluated by a systematic analysis and ranked
in order of importance.”
-Peter A. Phyer
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6. Definition cont…
• “ A method of budgeting whereby all
activities are re-evaluated each time
a budget is set. Discrete level of
each activity are valued and a
combination chosen to match funds
available.”
-CIMA
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7. Traditional budgeting vs. ZBB
Basis of diff. Traditional budgeting ZBB
1- Emphasis It is more a/cing oriented. It is decision oriented.
It lays emphasis on ‘how It lays emphasis on ‘why’.
much.’
2-Approach Its approach is monitoring Its approach is towards
towards expenditure. achieving objective.
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8. Cont…
Basis Traditional ZBB
3-Focus Its focus is on increase or Its focus is on cost
decrease in expenditure benefit analysis.
over past.
4-Commun. Vertical due to traditional Both type of comm.
budgeting. i.e. horizontal and
vertical.
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9. Essential of ZBB
• Concentration of effort is not on ‘how much’
but on the ‘why’.
• Choices are made on the basis of what each
unit can offer for a specific cost.
• Individual unit’s object is linked to the
corporate target.
• Quick budget adjustment can be made if,
during the operating year cost are need to be
maintain expenditure level.
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10. Cont…
• Alternatives ways are considered.
• Participation of all level in decision making.
• It require for a manager to justify the
resources requested for all activities and
project in rank order.
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11. Preparation of ZBB
• Determination of objective.
• Extent of ZBB should be decided.
• Development of decision packages.
• Cost and benefit analysis should be
undertaken.
• Selecting and approving decision packages
and finalizing the budget.
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12. Advantages of ZBB
• It enables the manager to allocate the fund
according to the jurisdiction of the programme.
• It improve the efficiency of management.
• It help in identifying the economical and wasteful
areas.
• It enables the management to make optimum use
of resources.
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13. Cont…
• It is appropriate for those areas which output is
generally not related to production.
• This technique is elastic because budget is
prepared every year on zero base.
• It enable the management for the systematic
evaluation of different operation and
programmes.
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14. Disadvantages of ZBB
• Computation of cost benefit analysis is not
possible in case of non financial matter.
• Difficulties in formulation and ranking of decision
packages as every manager may not have the
necessary expertise.
• It require a lot of training for manager.
• Where objective is very difficult to determined
in case of R&D ZBB has no advantage.
• It involve a lot of time and cost of operating ZBB
is also very high.
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16. Introduction
• It depend on the functions, activities and
projects.
• Performance budgeting is a budgeting system in
which input cost are related to the performance
i.e. to the end result.
• It lays emphasis on the result rather than the
expenditure incurred.
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17. Definition
Performance budgeting technique is the process of
analyzing, identifying, simplifying and crystallizing
specific performance objective of a job to be
achieved over a period in the frame work of
organization objective, the purpose and objective
of the job. The technique is characterized by its
specific direction towards the business objective
of the organization.
-NIBM
(Mumbai)
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18. Purpose of performance
budgeting
• To review at every stage and every level of
organization, so as to measure progress towards
the short term and long term objectives.
• To assess the effect of the decision making of
supervisor to the middle and top managers.
• To bring annual plans and budget in line with the
short and long term plan objectives.
• To facilitate the more effective performance
audit.
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19. Preparation-Example
• A company has a profit plan approved for selling 5000 unit
at 10/unit.the budgeted v.c. was 4/unit and f.c. was 20000,
and planned income was 10000/month. Now because of
shortage of raw material the plant could produce only 4000
units and cost of production was increased by 0.5/unit.
Consequently the s.p. was raised by 1.0/unit. To modify
production process in order to meet material shortage, the
company incurred a expenditure of 1000 on R&D. set out a
performance budget and summary report.
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20. Performance Budget
For the month of…
Budget Actual
Units Amount Total Units Amount Total
per unit amount per unit amount
(Rest.) (Rest.) (Rest.) (Rest.)
Sales 5000 10.00 50,000 4000 11.00 44,000
Less: variable cost 5,000 4.00 20,000 4,000 4.50 18,000
Contribution 6.00 30,000 6.50 26,000
Less: fixed cost 20,000 21,000
10,000 5,000
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21. Summary Report
Rs.
Planned income 10,000
Selling price variance +4,000
V. C. variance(due to increase in cost of production) -2,000
Activity variance (due to shortage of raw material) -6,000
F.C. variance (R&D expenditure) -1,000
Actual income 5000
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22. Limitation of P.B.
• Difficulty in classifying program and activities.
• Problem in appraisal of various scheme.
• Moreover it enables only quantitative evaluation
scheme sometimes the needed result can not be
measured.
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