Zero based budgeting and activity-based budgeting


• Zero based budget

This method of budgeting is to prevent successive budgets those are only the continuation of the budgets of previous years. It applies to most devices or logistic units and aims to redefine the structure costs (those represented by general services). From a cost-analysis reporting services, it is decided whether the allocated budgets must be increased, reduced or removed. Ultimately, each unit must justify its retention within the organization, its development, outsourcing or deletion. It is certainly a heavy method but particularly well suited to process of mergers and restructuring, as it allows reallocation of resources to new markets or new activities.

• Budget based on the activity (or activity-based costing)

Budgetary method that resource allocation is no longer only a function of volume indicators, but depending on the characteristics of products or services. Its purpose is to explain the value creation process within the company's responsibility centers. This method aims to understand the activities and relationships between them to the overall strategy of the company by using an analysis in terms of process. It may be designed to analyze customer requests satisfaction directly, namely:
■ the resources required to meet the normal demands of customers; Refer to useful basics
■ the specific resources needed to meet the demands of discretionary clients;
■ opportunities to respond to unusual requests if customers pay a premium price.

The resources are not allocated to activities (or responsibility centers) on the key base of more or less arbitrary distribution but are estimated on the basis of the actual level of business activity centers. The budgets are no longer cost measurement tools but tools to determine the causes and effects of unexpected changes in parameters. 
The A.B.C. ("Activity based costing") is a method of calculating costs bearing on the concept of activity, not the concept of product or service. The A.B.M. ("Activity-based management") is the management method Building on the tools developed by ABC

• Flexible Budget

Budget estimate the total cost of an analysis center distinguishes variable costs, the amount depends on the activity of the center (not necessarily proportional) and fixed costs, including the short-term amount is independent of activity level. Flexible budgets can be established based on different assumptions of activity levels.
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