CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control
Which statement best describes zero-based budgeting (ZBB)?
Zero-based budgeting requires every activity and its cost to be justified afresh each budget period, starting from zero rather than from last year's figures. This differs from incremental budgeting, rolling budgets and cash budgets.
- AEach year's budget is the previous year's budget adjusted for inflation
- BEvery activity must be justified afresh from zero base each budget periodCorrect
- CBudget is revised continuously by adding a future month as each month expires
- DBudget is prepared only for cash receipts and payments
Explanation
ZBB requires managers to justify all activities and expenditure from scratch, not on past levels. Option 0 describes incremental budgeting, option 2 a rolling or continuous budget, and option 3 a cash budget.
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