ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control
Orion Logistics adopts zero-based budgeting for its support departments. Each manager must prepare decision packages showing alternative service levels and costs, which are then ranked. Which of the following is the most significant problem likely to arise in implementing this system?
The main problem is that zero-based budgeting is time-consuming and can encourage a short-term focus, because ranking decision packages tends to favour benefits that are easy to quantify. The other statements describe incremental budgeting or contradict ZBB, which suits discretionary cost areas and requires alternatives.
- APrior-year spending becomes the automatic starting point, encouraging waste
- BIt is time-consuming and may encourage a short-term focus, as ranking packages favours easily quantified benefitsCorrect
- CIt cannot be applied to discretionary cost centres
- DManagers are not required to consider alternative ways of providing services
Explanation
ZBB requires considerable time, skill and paperwork, and ranking decision packages can favour short-term, quantifiable benefits over long-term ones. Starting from prior-year spending describes incremental budgeting. ZBB suits discretionary cost areas, and it explicitly requires alternatives to be considered.
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
- Orchard Foods replaces its traditional incremental budget with an approach where each manager must justify every activity's cost from zero e…
- A divisional manager receives a monthly report showing a large adverse materials price variance caused by a supplier price rise imposed by h…
- Dalton Retail's budgeted sales were 5,000 units at $20, with a standard contribution of $8 per unit. Actual sales were 4,600 units at $21. V…
- Tarn Engineering evaluates plant managers using a budget-constrained style, so a manager is judged solely on meeting the budgeted cost every…
- Marlow Ltd budgeted 8,000 units with variable overhead of $5 per unit and fixed overhead of $40,000. Actual output was 9,000 units and actua…
- Brightwell Retail, a stable, decentralised group, is deciding how to set divisional budgets. Divisional managers have detailed local market …