Accounting · Zero-Base Budgeting
A bank is implementing a Zero-Base Budgeting (ZBB) exercise for its Retail Lending Division. Which core objective of Management Accounting is this exercise primarily intended to satisfy, and why is this approach considered superior to traditional budgeting methods in this context?
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- 1Planning and Resource Allocation; ZBB is superior because it requires the complete re-justification of all activities and expenditures annually, breaking away from historical spending patterns to achieve optimal resource allocat ion.✓
- 2Decision Making and Pricing; ZBB is superior because it provides the Marginal Cost of every retail product, allowing for optimal dynamic pricing strategies.
- 3Control and Variance Analysis; ZBB is superior because it sets stricter Standard Costs for every activity, making the detection of operational inefficiency immediate and precise.
- 4Planning and Budgeting; ZBB is superior because it ensures that all expenditure is justifiable from a base of zero, forcing the reallocation of funds from non-performing assets.
Correct answer
Planning and Resource Allocation; ZBB is superior because it requires the complete re-justification of all activities and expenditures annually, breaking away from historical spending patterns to achieve optimal resource allocat ion.
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