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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

A company sets its budget by starting from zero for every activity each period. Each manager must justify every item of expenditure and rank decision packages in order of priority, regardless of what was spent in the previous year. Which budgeting technique is this?

This is zero base budgeting. Every expense is justified from scratch each period, and decision packages are ranked by priority without relying on last year's spending. Incremental budgeting differs because it starts from the previous period's figures and adjusts them.

  1. AIncremental budgeting
  2. BZero base budgetingCorrect
  3. CRolling budgeting
  4. DFlexible budgeting

Explanation

Zero base budgeting requires every activity to be justified afresh, with decision packages ranked by priority, without reference to past spending. Incremental budgeting is wrong because it adds or subtracts a percentage to the previous period's figures.

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