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ACCA Applied Knowledge · Management Accounting · Budget preparation

Which budgeting approach requires every activity to be justified afresh for each budget period, starting from a zero base rather than from the previous period's spending?

Zero-based budgeting is the approach. It builds the budget from zero, so each activity must be justified in terms of its costs and benefits before resources are allocated, unlike incremental budgeting, which simply adjusts last period's figures for expected changes.

  1. AIncremental budgeting
  2. BZero-based budgetingCorrect
  3. CRolling budgeting
  4. DFlexible budgeting

Explanation

Zero-based budgeting starts from nothing and requires each activity's costs and benefits to be justified. Incremental budgeting instead adds an adjustment to the prior period's figures.

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