Budgetary Slack and Zero-Base Budgeting (ZBB) Bob Bingham is the controller of Atlantis Labo- ratories, 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 man- agers prepare and assemble the detailed operating budgets with technical assistance from the cor- porate 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.
Define the term budgetary slack.
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.
Bob Bingham is considering implementing zero-base budgeting (ZBB) in Atlantis Laboratories.
Define zero-base budgeting.
Describe how zero-base budgeting could be advantageous to Atlantis Laboratories in controlling budgetary slack.
Discuss the disadvantages Atlantis Laboratories might encounter in using ZBB.