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

A firm prepares its budget by starting afresh every quarter, justifying each activity's cost from zero base without reference to the previous period's expenditure. Which budgeting technique is this?

The technique is Zero Base Budgeting. Under ZBB every activity and its cost must be justified afresh from a zero base, without relying on the previous period's spending. Rolling budgets only add a new period as one ends, and fixed budgets do not change with activity.

  1. AZero Base BudgetingCorrect
  2. BRolling budget
  3. CFixed budget
  4. DPerformance budget

Explanation

Zero Base Budgeting requires every activity and its cost to be justified afresh, ignoring past levels of spending. A rolling budget is updated continuously by adding a new period as one expires, but it is not built from zero. A fixed budget is not adjusted for actual activity.

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