Page 151 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes 3. The next important stage is to prioritize the activities.

4. The Most important step involved in the process of ABB is cost benefi t analysis.

5. The final step is to select, approve the decision packages and finalise the budget.

7.7.2 Benefits of Zero-base Budgeting
1. It acts as guide for the management to allocate the resources more accurately depends
upon the priority for an effective implementation.

2. It enhances capability of the managers who prepares the budget for future action.
3. It paves way for optimum utilization of resources available.
4. It is a technique of utilitarian of the resources with reference to the activity involved.
5. It is dome shaped only towards the achievement of organizational goals.

7.7.3 Criticism of Zero-based Budgeting

1. Non-financial matters cannot be considered for the cost and benefi t analysis.
2. Difficulties involved in the process of ranking of the decision packages.

3. It needs more time span for preparation and cost of operations is more and more.

Self Assessment

Fill in the blanks:
19. The ……………… considers the current year as a new year for the preparation of the
budget.

20. The very first step is to prepare the Zero-base Budgeting is to enlist the ………………

7.8 Summary

Budget is an estimate prepared for definite future period either in terms of fi nancial or
non-fi nancial terms.
Budgeting means the process of preparing budgets. In other words, budgeting refers to the
management action of formulating budgets.
Cost control contains two different processes one is the preparation of the budget and
another one is the control of the prepared budget.
The production budget is a statement of goods, how much should be produced.

The ultimate aim of the production budget is to find out the volume of production to be
made during the year based on the sale volume.
Sales Budget is an estimate of anticipation of sales in the near future prepared by
the responsible person for the sale of a product by considering the various factors of
infl uence.
The expected increase or decrease in the sales volume should be incorporated at the time
of preparing the sales budget from the yester periods sale fi gures.

Cash budget is nothing but an estimation of cash receipts and cash payments for specifi ed
period. It is prepared by the head of the accounts department, i.e. Chief Accounts Offi cer.

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