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Which of the following is a feature of a zero-based budgeting approach, as distinct from the traditional incremental approach?

Zero-based budgeting requires every activity and its expenditure to be justified afresh each period, rather than assuming the previous year's allocation as the base. The traditional incremental approach simply adds a percentage to last year's figures. This makes zero-based budgeting more rigorous in controlling wasteful spending.

  1. AEvery activity must be justified afresh each period, without assuming last year's allocationCorrect
  2. BLast year's spending is taken as the base and a percentage increase is added
  3. COnly capital expenditure items are reviewed
  4. DRevenue estimates are set to zero for the year

Explanation

Zero-based budgeting starts from a zero base, so each programme and its cost must be justified from scratch. The incremental method adds a percentage to the previous year's figures, which is the option describing the traditional approach. It is not limited to capital items and does not set revenue to zero.

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