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

Rajesh Textiles Ltd. prepares its budget for the coming year by starting afresh and justifying every item of expenditure from zero, irrespective of the previous year's spending. Which budgeting technique is the company using?

The company is using zero base budgeting, because every item of expenditure is justified from zero for each period without relying on the previous year's figures. A rolling budget merely adds a new period as one ends, and a fixed budget does not adjust to activity.

  1. AZero base budgetingCorrect
  2. BRolling budget
  3. CPerformance budgeting
  4. DFixed budget

Explanation

Zero base budgeting requires each activity and its cost to be justified from scratch for every budget period, without reference to past spending. A rolling budget is instead updated periodically by adding a new period as one expires, and a fixed budget does not change with activity level.

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