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

Which feature distinguishes zero-base budgeting from traditional incremental budgeting?

Zero-base budgeting requires every activity and expense to be justified afresh from zero in each budget period, instead of simply adding an increment to previous figures. This helps eliminate unnecessary spending and allocate resources according to priority and benefit.

  1. AEvery activity must be justified afresh from zero for each budget periodCorrect
  2. BLast year's figures are increased by a fixed percentage
  3. CBudget is revised every month by adding a new month
  4. DThe budget is prepared for only one activity level

Explanation

Zero-base budgeting starts from a zero base and requires every activity and its cost to be justified for the new period. Adding a percentage to the previous year is incremental budgeting. Adding a new period as one expires describes a rolling budget, and a single activity level describes a fixed budget.

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