Budgets (3)

Question 1

What is incremental budgeting?

Answer 1

Where budget is based on current year’s budget plus an extra amount for esitmated growth or inflation

Question 2

When is incremental budgeting sufficient?

Answer 2

If current operations are as efficient, effective and economical as they can be, without any alternative courses of action available to the organisation

Question 3

Advantages of incremental budgeting?

Answer 3

Simple and cheap

Relatively quick to administer

Question 4

Limitations of icnremental budgeting (inefficeint)

Answer 4

Does not identify inefficient operations meaning inefficiencies will continue

Question 5

Limitations of icnremental budgeting (Budgetary slack)

Answer 5

Budgetary slack once introduced will be carried forward into future periods

Question 6

Limitations of icnremental budgeting (Changing environments)

Answer 6

It isn’t suitable for changing environments, as it is based on past and assumes activities will continue to be the same

Question 7

Limitations of icnremental budgeting (Spending)

Answer 7

Encourages managers to spend up to the budget because if they don’t, budget likely cut in the next period

Question 8

Limitations of icnremental budgeting (Challenging performance)

Answer 8

Does not produce challenging performance targets or encourage managers to find ways of improving the business

Question 9

What is ZBB used for/

Answer 9

Allocating resources more efficiently, thus reducing waste and increasing efficiency

Question 10

How does the process of ZBB start?

Answer 10

The basic premise that next year’s budget is zero. Every activity must be justified in its entirety before it can be included in the budget

Question 11

How is incremental cost and incremental benefit of each decision package considered?

Answer 11

Priority given to those packages providing the most added value to organisaiton’s key objectives

Question 12

WHat is a decision package?

Answer 12

Every process, item of expenditure, intended activity

Question 13

When is ZBB not suitable?

Answer 13

For direct manufacturing costs

Question 14

When is ZBB suitable/

Answer 14

For public sector organisations where funding (income) is fixed, and best possible service for available budget needs to be achieved

Support expenses or discretionary costs

Question 15

What are mutually exclusive packages?

Answer 15

Contain alternative methods of getting the same job done

Question 16

What are incremental packages?

Answer 16

Divide one aspect of an activity into different levels of effort

Question 17

WHat would a base package describe?

Answer 17

The minimum requirement for maintenance work

Question 18

Example of base package?

Answer 18

Pay for one person per shift for two shifts each day at a cost of $30000

Question 19

Example of incremental package?

Answer 19

Might be to pay for two people on early shift and one person on late shift, at a cost of $45000