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Traditional budgeting vs. zero base budgeting
1) Traditional budgeting is accounting oriented. Main stress happens to be on previous level of expenditure. Zero base budgeting makes a secession oriented approach. It is very rational in nature and requires all programs old and new to compete for scarce resources
2) In traditional budgeting first reference is made to past level of spending and then demand is made for inflation and new program in zero base budgeting a decision unit is broken into understandable decision packages which are ranked according to importance to enable top management to focus attention only on decision packages which enjoy priority to others.
3) In traditional budgeting some managers deliberately inflate their budget requests so that after the cuts they still get what they want. In zero bases budgeting a decision unit is broken into understandable after analysis of budget proposals is attempted. The managers who unnecessarily try to inflate the budget requests are likely to be caught and exposed. Management accords its approval only to a carefully devised result oriented packages.
4) In traditional budgeting it is for top management to decide why a particular amount should be spent on a particular decision unit. In zero base budgeting, this responsibility is shifted from top management to the manager of decision unit.
5) Traditional budgeting is not as clear and as responsive as zero base budgeting makes a very straightforward approach and immediately spotlights the decision packages enjoying priority over others.
Stock-out costs These are the opportunity costs of running out of stock. They comprise: 1) The costs of lost customer sales, and therefore lost contribution to fixed costs.
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