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ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting

A company starts each budget period by requiring every manager to justify all planned expenditure from a zero base, rather than adjusting last year's figures. Which budgeting approach is this?

This is zero-based budgeting. Each manager must justify all planned expenditure from a zero starting point instead of adjusting the previous year's figures, which distinguishes it from incremental budgeting, rolling budgets and flexed budgets.

  1. AIncremental budgeting
  2. BZero-based budgetingCorrect
  3. CRolling budgeting
  4. DFlexed budgeting

Explanation

Zero-based budgeting requires every activity and its cost to be justified afresh each period, starting from nil. Incremental budgeting adjusts the prior year's figures. Rolling budgets are continually updated, and flexed budgets adjust for activity levels.

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