p1 The following are the steps involved in Zero Base Budgeting : (1) No Previous year performance of inefficiencies are to be taken as adjustments in subsequent year. (2) Identification of activities in decision packages. (3) Determination of budgeting objectives to be attained. (4) Extent to which Zero Base Budgeting is to be applied. (5) Evaluation of current and proposed expenditure and placing them in order of priority. (6) Assignment of task and allotment of sources on the basis of cost benefit comparison (7) Review process of each activity examined afresh. (8) Weightage should be given for alternative course of actions. Advantages of ZBB (1) Utilization of resources at a maximum level. (2) It serves as a tool of management in formulating production planning. (3) It facilitates effective cost control. (4) It helps to identify the uneconomical activities. (5) It ensures the proper allocation of scarce resources on priority basis. (6) It helps to measure the operational inefficiencies and to take the corrective actions. (7) It ensures the principles of Management by Objectives. (8) It facilitates Co-operation and Co-ordination among all levels of management. (9) It ensures each activity is thoroughly examined on the basis of cost benefit analysis. Illustration: 17 The expenses budgeted for production of 10,000 units in a factory are furnished below: Per unit Rs. Materials Labour Variable factory overheads Fixed factory overhead (Rs. 1,00,000) Variable expenses (Direct) Selling expenses (10 % Fixed) Distribution expenses (20 % Fixed) Administrative expenses (Rs. 50,000) Total cost of sale per unit You are required to prepare a budget for the production of 8,000 units. 70 25 20 10 5 13 7 155