Final answer:
Zero-based budgeting is the method that starts with output and then identifies necessary inputs to achieve that output. This approach focuses each period on analyzing and justifying every expense and contrasts with methods based on past budgets.
Step-by-step explanation:
Budgeting that begins with output and then determines the resources necessary to create that output is referred to as zero-based budgeting. In this method, managers plan for necessary expenditures to meet the output requirements and justify each expense before they are approved. This contrasts with traditional budgeting where past budgets are used as a starting point and adjusted for the new period. Instead, zero-based budgeting starts from a 'zero base' and every function within an organization is analyzed for its needs and costs. Inputs, which are the resources such as labor, materials, and machinery used to produce goods and services, are carefully considered in the context of producing that output. The relationship between inputs and output is essential for companies as they plan their production function, which is a technical relationship showing the maximum number of outputs that can be produced with a given set of inputs. The expenditure-output model that originates from Keynesian economics also touches upon the concept of outputs determining expenditures.