Question

................ is a method of budgeting in which all expenses must be justified at each new period.

• A. Performance Budgeting
• B. Zero based Budgeting
• C. Master Budgeting
• D. Flexible Budgeting

Answer 1

Answer:

B. Zero based Budgeting

• Zero-Based Budgeting (ZBB) is a strategic financial management technique where every line item in a budget must be approved and justified from a zero base at the start of each accounting period.
• Unlike traditional budgeting, which often uses the previous year's expenditure as a starting point (incremental budgeting), ZBB requires management to evaluate the necessity of all activities and costs regardless of past spending patterns.
• Historical Context: This method was popularized by Peter Pyhrr while he was working at Texas Instruments in the early 1970s. It later gained significant recognition when Jimmy Carter implemented it within the state government of Georgia and subsequently in the US federal government.
• Core Mechanism: The process involves identifying decision units, creating decision packages (evaluating various ways to perform a task), and ranking these packages based on cost-benefit analysis and organizational priorities.
• Advantages for Cooperative Societies:
  • Promotes resource optimization and eliminates wasteful or redundant expenditures.
  • Encourages critical thinking and active participation from all departmental managers.
  • Ensures that limited financial resources of the cooperative are allocated to the most essential and productive activities.
• Limitations: It is a highly time-consuming and labor-intensive process, often requiring significant administrative effort and detailed documentation compared to traditional budgeting methods.