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CMA Intermediate · Cost Accounting · Budget and Budgetary Control

In Zero Base Budgeting (ZBB), the first step in preparing the budget for a department is to:

The first step in ZBB is to identify each activity and describe it as a decision package. Every activity must be justified from zero rather than being based on past spending, so incremental additions to last year's actuals are not the starting point.

  1. AAdd a fixed percentage to last year's actual expenditure
  2. BIdentify and describe each activity as a decision packageCorrect
  3. CAllocate the total budget equally among all departments
  4. DFix the budget on the basis of the previous year's variance

Explanation

ZBB starts with every activity being justified from scratch. The activities are broken into decision packages, which are then ranked. Adding a percentage to last year's figures is incremental budgeting, the opposite of ZBB.

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