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CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control

Which budgeting approach requires every activity to be justified afresh from a zero base in each budget period, ranking decision packages by priority rather than starting from last year's figures?

Zero-based budgeting is the approach described. It ignores prior-year allocations, requires managers to justify each activity from scratch through decision packages, and ranks these packages by priority to allocate resources.

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

Explanation

Zero-based budgeting starts from zero, requires each activity to be justified through decision packages and ranks them. Incremental budgeting adjusts last year's figures, which is the opposite approach.

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