Outline six features of zero-based budgeting and explain six uses of profit-volume analysis.

Here are the answers to your quiz questions:

a) Outline any six features of zero-based budgeting (6 marks).

1. Justification of all expenses: Every activity and cost must be justified from scratch, rather than simply adjusting previous budgets.
2. Decision packages: Activities are grouped into "decision packages" which describe the activity, its purpose, costs, and benefits.
3. Ranking of packages: All decision packages are ranked in order of importance to the organization.
4. Cost-benefit analysis: Each package undergoes a thorough cost-benefit analysis to determine its value.
5. Resource allocation: Resources are allocated based on the ranking of decision packages, starting from the highest priority.
6. Managerial involvement: Requires significant involvement from managers at all levels to justify their departmental activities.

b) Explain any six uses of profit volume analysis (6 marks).

1. Break-even analysis: Determines the sales volume (in units or revenue) required to cover all costs and achieve zero profit.
2. Target profit analysis: Calculates the sales volume needed to achieve a specific desired profit level.
3. Pricing decisions: Helps in setting optimal selling prices by understanding their impact on sales volume and overall profitability.
4. Product mix decisions: Guides management in deciding which products to prioritize or emphasize to maximize overall profit, especially with limited resources.
5. Cost control: Identifies the behavior of costs (fixed vs. variable), aiding in effective cost management and reduction strategies.
6. Performance evaluation: Can be used to assess the profitability of different products, departments, or sales territories.

c) Explain three features of Marginal costing (3 marks).

1. Cost classification: Costs are strictly classified into fixed and variable components.
2. Inventory valuation: Only variable production costs (direct materials, direct labor, variable manufacturing overhead) are included in the valuation of inventory.
3. Contribution margin focus: Emphasizes the contribution margin (sales revenue minus total variable costs) as a key metric for decision-making and profit analysis.