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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

Which budget is prepared by starting every activity from zero and requiring each item of expenditure to be justified afresh, rather than adding to the previous period's figures?

This is a zero-based budget. Each activity and expense is justified from scratch for the new period instead of being carried over from earlier figures, unlike an incremental budget that merely adjusts the previous period's amounts.

  1. AZero-based budgetCorrect
  2. BIncremental budget
  3. CFlexible budget
  4. DMaster budget

Explanation

Zero-based budgeting ignores past levels of spending and demands justification of every activity from a zero base. An incremental budget adjusts last period's figures, which is the opposite approach. Flexible and master budgets are not defined by this justification feature.

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