ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control
Linden Care, a not-for-profit hospice, receives a fixed annual grant and donations. Its managers argue that budgets should start from the needs of each service rather than last year's spending, because many services were set up years ago and nobody has challenged whether they still deliver value. Which approach BEST fits this context, and what is its main drawback?
Zero-based budgeting fits best because every service must be justified from scratch, challenging legacy spending in a grant-funded charity. Its main drawback is that it is time-consuming and requires heavy management effort. Incremental budgeting would simply carry forward old inefficiencies, and participative budgeting does not remove slack.
- AZero-based budgeting; it is time-consuming and demands significant management effortCorrect
- BIncremental budgeting; it encourages managers to spend unused budget
- CFlexed budgeting; it cannot be used for fixed grant income
- DParticipative budgeting; it prevents managers from building in slack
Explanation
Zero-based budgeting requires each activity to be justified from scratch, which challenges historic spending and suits not-for-profit and discretionary-cost contexts. Its main drawback is the time and effort involved. Incremental budgeting is the approach that perpetuates inefficiency, and participative budgeting tends to increase, not remove, the risk of slack.
Did you get it right without looking?
One question tells you little. A timed set on Budgetary planning and control shows your real accuracy, how long you take and where you lose marks.
More Budgetary planning and control questions
- Brandt Plc is considering how difficult to make budget targets. Research on motivation suggests which targets are most likely to maximise pe…
- Orlin Group uses a budget-constrained evaluation style: managers are judged mainly on meeting the annual cost budget, with severe consequenc…
- Norvik Services is considering moving to a Beyond Budgeting model. Which of the following changes is most consistent with that philosophy?
- Orion Ltd budgeted 2,000 labour hours at $15 to make 1,000 units. Actual output was 1,100 units using 2,300 hours, paid at $14.50 per hour. …
- Halden Co budgets for a product with a selling price of 50 per unit. Demand is uncertain. The unit variable cost is 30 and the batch must be…
- Brightwell Retail, a stable, decentralised group, is deciding how to set divisional budgets. Divisional managers have detailed local market …