The Sticky Company makes a glue that is used to glue the layers of wood veneer t

Question

The Sticky Company makes a glue that is used to glue the layers of wood veneer together to make plywood. The process for making the glue has been used for many years and the customers are satisfied with the product. The Sticky Company has had very low turnover of personnel and the president and the managers have all been with the company for many years. Although the company appears very stable today, plywood prices are rising and the construction industry is beginning to switch to a cheaper product called chipboard. Chipboard uses a different glue than the glue made by the Sticky Company.

Required:
a. Given the present condition of Sticky Company, should the company use long-term budgets, line-item budgets, budget lapsing, flexible budgets, or zero-based budgeting?

Explanation / Answer

The mangement should use the Zero based budget. Because of "the chip board making is new to the comapny ,it does not have any historical data till now. So Due to market conditions ,from this year onwards company wants to make use of chipboard. So zero based budget only be used to estiamte the budget. Note: Budgets oftenly based on the past data,but Zero based budget would be start with some expectation ,and then budgetd,and it dose not take any past data into consideration. we can storngly say this wont be comes uneder 1.long term budget 2.Flexible budget 3.budget lapsing 4.line item budget.

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