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CMA Intermediate · Cost Accounting · Budget and Budgetary Control

Under zero-base budgeting, the starting point for preparing the budget of a department is:

In zero-base budgeting, every activity is justified from scratch, organised into decision packages and ranked by priority, without relying on past expenditure. Incremental approaches that begin with last year's figures are the opposite of this method.

  1. ALast year's actual expenditure plus an inflation allowance
  2. BLast year's budget adjusted for volume change
  3. CJustification of every activity from a zero base, ranked through decision packagesCorrect
  4. DExpected sales revenue less desired profit

Explanation

Zero-base budgeting requires each activity and its cost to be justified afresh, formed into decision packages and ranked by priority. The incremental approaches in the other options start from past figures, which ZBB rejects. The profit-based formula is not a ZBB method.

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