STRATEGIC MANAGEMENT ACCOUNTINGCase study: Zero-based budgetingThis is a print version of the digital learning resource undertaken online as an optional addition to the subject Study guide, which remains the key resource.To be used in conjunction with Strategic Management Accounting, 2nd Edition.
R:\Workgroups\CPA-Production\CPA Course Material\CPA 104 SMA_16a\SMA-Subject-outline\sma_cs_zbb_print-friendly_2nd-edn_121118DTP: Mira1st pages 16a 12-11-18ii| STRATEGIC MANAGEMENT ACCOUNTINGNote:The premise of the digital learning resources are to enhance the learning opportunities presented within the subject Study guide through interactivity and application of the theory provided within the Study guide. The subject Study guide remains the key resource, but at certain points throughout the Study guide candidates may choose to utilise these new resources to enrich the learning experience.ContentsZero-based budgeting 1What is zero-based budgeting? 1HistoryUptake of zero-based budgetingContinue your learningHow is zero-based budgeting used? 3Features of zero-based budgetingWhen to use zero-based budgetingAdvantages and disadvantages of zero-based budgeting Match the features of zero-based budgetingContinue your learning Background of Kraft Heinz 5Cost packagesCost ownersCost reduction targetsChanging employee behaviourConclusionSolution 8
R:\Workgroups\CPA-Production\CPA Course Material\CPA 104 SMA_16a\SMA-Subject-outline\sma_cs_zbb_print-friendly_2nd-edn_121118DTP: Mira1st pages 16a 12-11-18CASE STUDY: ZERO-BASED BUDGETING |1Zero-based budgetingZero-based budgeting (ZBB) is an alternative to the traditional budgeting approach.The aim of this case study is to examine what ZBB is, how it is used, and its advantages and disadvantages. The case study also provides an example of ZBB’s use in a real-life company (Kraft Heinz). By the end of this case study you will be able to:• explain what ZBB is• discuss how ZBB is used• describe how ZBB is used at Kraft Heinz.What is zero-based budgeting?In ZBB, the previous year’s budget is not used as a starting point. The budget starts at zero, and there is no reliance on or incremental increases from previous budgets. Budgets for the coming period are prepared regardless of whether they are higher or lower than the previous year’s cost. Each dollar that is planned to be spent has to be justified.Actual figures from the previous year are only analysed to understand the cost behaviour and to build a baseline in preparing a budget.
R:\Workgroups\CPA-Production\CPA Course Material\CPA 104 SMA_16a\SMA-Subject-outline\sma_cs_zbb_print-friendly_2nd-edn_121118DTP: Mira1st pages 16a 12-11-182| STRATEGIC MANAGEMENT ACCOUNTINGHistoryZBB was first used in the early 1970s.Peter Pyhrr ZBB was first introduced in the early 1970s by Peter Pyhrr, who was an accounting executive at Texas Instruments (Hockey 2016a).Widespread attention In the late 1970s, ZBB gained widespread attention when the US President, Jimmy Carter, announced he would apply ZBB principles to federal spending (McLaughlin 2017).