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ZBB is particularly suitable for service industries such as hotels where variable expenses make up a large
proportion of total expenditures. Alternative levels of provision for each activity, such as breakfast selection,
are possible and cost and benefits are separately identifiable. Therefore statement 2 is true.Why is it true? As far I am concerned zero based budgeting is useful for discretionary expenses not direct expenses. Inorder to curtail direct expenses I believe value analysis can be undertaken. Is it true? Zero based budgeting is still useful for any expenses where there is room for reduction.
The focus of zero based analysis is on cost areas within the business (it is not a question as to whether or not they are discretionary). It is examining different ways of achieving the same function and choosing the most cost-effective way. I give the example of the cost of telephones for the business – whether to have landlines or mobile phone. The provision of breakfast is another example – looking at different ways of providing breakfasts and choosing the most cost effective way.
Value analysis is focussing more on the customer. Looking for ways of providing the same value for customers (so they will still be prepared to pay the same price) while cutting the cost involved.
(It would be appropriate for providing breakfast maybe if the service was just providing breakfast, but what the customer in a hotel is paying for is for the whole ‘package’ and not the breakfast on its own.)
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