Zero-Based Budget for Local Passenger Transport - myassignmenthelp

Question: Discuss about theZero-Based Budget for Local Passenger Transport. Answer: Zero-based budgeting (ZBB) is a technique of accounting where all expenditures must be accounted for every new budget year. The procedure of zero-based budgeting beginnings from a "zero base," and each role in a company is examined for its requirements and expenses. Budgets are then made with all elements in mind for the new budget year, with no thought on whether it is higher or lower than the previous one. Instead of thoughtlessly enhancing the budget by a particular amount and covering the expenses added, the organization can recognize a circumstance where it can choose to manufacture the required part on its own or purchase is from the outside dealer for the final goods. Thus, zero-based budgeting purposes to detect and validate expenses.This paper will discuss the concept of adding 15-20% to a zero-based budget to protect against unforeseen expenditures in depth; this is having extra cash in the budget in case anything goes wrong. It will look at the pros and cons of this concep t (Lubis, Siregar, Fauzi, 2014). The concept of business adding to their zero-based budget a 15-20% increment is done for various reasons. It is done mostly as a way of cushioning it if it goes into crisis during the budget year. When the company decides to take this route, it can end up facing various positives and negatives as a result. The advantages of this concept include, The company will be able to shelter any additional costs they may not have foreseen while doing the budget for that year. Hence they will not have to scramble to find ways to cover the costs as you have the extra money at hand (Callaghan, Hawke, Mignerey, 2014). Another advantage is that when preparing this budget, it will not be as time-consuming as making the zero-based budget as it will not have to go into in-depth details. The extra 15 to 20 % will cover any additional expenses that may come up. Thus this will be easier to understand and have less paperwork while preparing it (Achim, 2014). This concept will also have disadvantages. Some of them include; one is that with a zero-based budget, every cost and expenditure is kept track of and can be justified, but with this extra money it might not be the case anymore. When there is extra money, the funds might get lost and not be explained where it was spent, and as many companies expect money to be spent when budgeted for they will not scrutinize this.Thus it will lead to the establishment of a dangerous culture of embezzlement and corruption (Callaghan, Hawke, Mignerey, 2014). Another disadvantage is that when a department does not use up its budget, it will have it reduced in the next year. Thus they will be wasteful in their spending to avoid this from happening. Another one is that it will lead to departmental managers being lax on reducing expenditure and costs because they have the extra money in the budget to fall back on in case of anything (Chan, 2008). In conclusion, The concept of having a 15 to 20 % increase on a zero-based budget is a reasonable deviation from incremental and zero-based budgeting as it covers most concerns about both of them. Thus, it is the best way for a company to budget. It has both pros and cons, but the advantages far outweigh the negatives. All in all, this is a good budgeting concept. References Achim, S. (2014). Zero-based budget vs. incremental budget in local passenger transport services. Revista de management ?i inginerie economic?,13(1), 77-88. Callaghan, S., Hawke, K., Mignerey, C. (2014). Five myths (and realities) about zero-based budgeting.McKinsey Company, 2, 58-62. Chan, G. R. (2008). Aligning collections budget with program priorities: A modified zero-based approach.Library Collections, Acquisitions, and Technical Services,32(1), 46-52. Lubis, A., Siregar, H. S., Fauzi, S. (2014). A Study on the Different Applications Of Performance-Based Budget And Zero-Based Budget On Regional Task Force Units In North Sumatra.International Journal of Management Sciences and Business Research,3(10) 10-16.