You are on page 1of 10

Group 6

Defined

as a budget which by recognizing the difference in behaviour between fixed and variable cost in relation to fluctuations in out put, turnover or other variable factors, is designed to change. Also known as Multi Volume Budget. Flexible budget can be prepared under 3 methods: Tabular, Charting and Ratio Method.

Steps

involved in preperation of flexible budget: Specify the time period that is used Classify all costs into fixed, variable and semi variable categories Determine types of standard that are to be used Analyse cost behaviour pattern in response to past levels of activity. Build up the appropriate flexible budget for specific level of activity.

With

flexible budget it is possible to establish budgeted cost at any level of activity. Helps in profit planning and operating cost control. Recons operational realities Techniques like standard costing can be effectively implemented and objectively operated.

It

relies on assumption of continuity when costs may actually behave in a stepped or discontinues manner Method of fixed and variable cost is often arbitrary. Irrespective output/sales , flexed budgets tend to maintain fixed costs at the same level, but very often fixed costs are actually fixed only over a relevant output range.

It

is a method of budgeting where by all activities are re evaluated each time a budget is formulated. ZBB may be referred to as De nova budgeting or budgeting from the beginning. ZBB may also be defined as a planning and budgeting process which requires each manager to justify his entire budget request in detail from scratch hence zero budget

ZBB

requires decision packages to be developed and ranked Determining the activities around which decision packages should be prepared is the most critical step in ZBB ZBB depends on prioritizing of decision packages, so it is very crucial that DP is prepared very carefully after understanding heir contribution to goal and and objective of the organization, resources required and expected output

Mutually

Exclusive Package: It contains an alternative method of getting the same job done.
Packages: Divides aspect of work or activity into different level of efforts. This package will describe the minimum amount of work must be done to carry out the activity.

Incremental

Inefficient

and obsolete operations are identified and removed It adds psychological impetus to employees to avoid wasteful expenditure. It is a planning tool which identifies wasteful items of expenditure. Promotes operational efficiency because it requires managers to review and justify their activities or funds requested.

ZBB

requires lot of training for managers , if the idea behind ZBB is not understood properly by the managers then it is difficult to introduce it successfully. ZBB is criticized for giving more importance to short term benefits It gives false idea that all the decision have t be made during the budget.

You might also like