Final answer:
Budgeting that starts with the output and then assesses the necessary resources is known as activity-based budgeting (option b). It focuses on the efficient allocation of resources by understanding activities that drive costs, and requires forward-looking decisions that are not influenced by past, unrecoverable expenses.
Step-by-step explanation:
Budgeting that begins with output and then determines the resources necessary to create that output is referred to as activity-based budgeting. This approach contrasts with traditional budgeting methods that often start with previous years' expenditures as a base and make adjustments for the new budgeting period.
Activity-based budgeting aims to allocate resources more effectively by understanding the cost-driver activities that cause expenses. This method underscores the efficiency in business operations as it focuses on the costs associated with performing activities required to produce specific products or services.
Why is budgeting considered difficult by some individuals? The challenge often lies in the need to make choices and give up certain expenditures that offer immediate gratification, such as daily coffee trips or subscriptions, in favor of long-term financial goals.
Budgeting involves weighing opportunity costs and making decisions on allocating disposable income towards consumption or savings, a concept encapsulated by the budget constraint framework.
This framework implies that all decisions should be forward-looking, not influenced by sunk costs, which are past expenses that cannot be recovered. Whether dealing with fixed costs, which remain constant irrespective of the level of production, or variable costs, which fluctuate with production levels, efficient budgeting requires clear insights into how resources are utilized.