ACCA Applied Knowledge · Management Accounting · Budget preparation
A company's budget for next year is prepared by starting with every activity at zero and requiring each manager to justify all expenditure from scratch, ranking decision packages by priority. Which budgeting technique is this?
This is zero-based budgeting. It starts from zero, makes managers justify every item of expenditure, and ranks decision packages by priority, unlike incremental budgeting, which simply adjusts last year's figures for expected changes.
- AIncremental budgeting
- BZero-based budgetingCorrect
- CRolling budgeting
- DFlexible budgeting
Explanation
Zero-based budgeting starts from a base of zero and requires every activity's cost to be justified, usually via ranked decision packages. Incremental budgeting instead adjusts the prior year's figures for expected changes.
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