Explain the advantages and disadvantages of zero base budgeting.

Management Accounting Block Revision Mock Exams

1. It identifies and eliminates wastage.
2. It ensures that the best possible methods of performing jobs are used and that ideas are generated.
3. It should result in more efficient allocation of resources.
4. It increases communication with the organization.
5. It involves participation of management and should therefore motivate them.
6. The documentation of decision packages provides management with deep coordinated knowledge of all the firm‟s activities.
7. It makes manager more aware of the costs of input and helps them to identify priorities.

Disadvantages of Zero Base Budgeting
1. The costs of preparing a vast number of decision packages in a large firm is very high.
2. A large volume of additional paper work is created.
3. Managers feels threatened by it.
4. The ranking of decision packages and allocation of resources is subjective to a certain degree and can give rise to departmental conflict.
5. Despite increased participation, a large volume of information travels one way downwards.

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