Budgetary Slack and Zero-Base Budgeting (ZBB) Bob Bingham is the controller of AtlantisLaboratories, a manufacturer and distributor of generic prescription pharmaceuticals. He is currentlypreparing the annual budget and reviewing the current business plan. The firm’s business unit managers prepare and assemble the detailed operating budgets with technical assistance from the corporateaccounting staff. The business unit managers then present the final budgets to the corporate executivecommittee for approval. The corporate accounting staff reviews the budgets for adherence to corporateaccounting policies but not for reasonableness of the line items within the budgets.Bob is aware that the upcoming year for Atlantis could be a difficult one because of a major patent expiration and the loss of a licensing agreement for another product line. He also knows thatduring the budgeting process slack is created in varying degrees throughout the organization. Bobbelieves that this slack has a negative effect on the firm’s overall business objectives and should beeliminated where possible.Required1. Define the term budgetary slack.2. Explain the advantages and disadvantages of budgetary slack from the point of view of (a) the businessunit manager who must achieve the budget, and (b) corporate management.3. Bob Bingham is considering implementing zero-base budgeting (ZBB) in Atlantis Laboratories.a. Define zero-base budgeting.b. Describe how zero-base budgeting could be advantageous to Atlantis Laboratories in controllingbudgetary slack.c. Discuss the disadvantages Atlantis Laboratories might encounter in using ZBB.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Budgetary Slack and Zero-Base Budgeting (ZBB) Bob Bingham is the controller of Atlantis
Laboratories, a manufacturer and distributor of generic prescription pharmaceuticals. He is currently
preparing the annual budget and reviewing the current business plan. The firm’s business unit managers prepare and assemble the detailed operating budgets with technical assistance from the corporate
accounting staff. The business unit managers then present the final budgets to the corporate executive
committee for approval. The corporate accounting staff reviews the budgets for adherence to corporate
accounting policies but not for reasonableness of the line items within the budgets.
Bob is aware that the upcoming year for Atlantis could be a difficult one because of a major patent expiration and the loss of a licensing agreement for another product line. He also knows that
during the budgeting process slack is created in varying degrees throughout the organization. Bob
believes that this slack has a negative effect on the firm’s overall business objectives and should be
eliminated where possible.
Required
1. Define the term budgetary slack.
2. Explain the advantages and disadvantages of budgetary slack from the point of view of (a) the business
unit manager who must achieve the budget, and (b) corporate management.
3. Bob Bingham is considering implementing zero-base budgeting (ZBB) in Atlantis Laboratories.
a. Define zero-base budgeting.
b. Describe how zero-base budgeting could be advantageous to Atlantis Laboratories in controlling
budgetary slack.
c. Discuss the disadvantages Atlantis Laboratories might encounter in using ZBB.
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