Question

What statement most accurately describes zero-based budgeting?

a) Start with last year's budget and make adjustments for new sales expectations and projected costs.
b) The income statement budget where net income is zero.
c) Managers of each department are required to justify all their budgeted expenditures (regardless of the amounts expended in previous periods).

Answer 1

Zero-based budgeting (ZBB) is a budgeting process where managers justify all budgeted expenditures. Unlike traditional budgeting methods, ZBB starts from scratch each period. Managers must build a budget from the ground up.

Step-by-step explanation:

Zero-based budgeting (ZBB) is a budgeting process where the managers of each department are required to justify all their budgeted expenditures, regardless of the amounts expended in previous periods.

In other words, ZBB starts from scratch every budgeting period, unlike traditional budgeting methods that use last year's budget as a starting point for the current year and adjust it accordingly. With ZBB, managers need to build a budget from the ground up, considering the costs and benefits of each expense item.

For example, if a department budgeted $10,000 for office supplies last year but only spent $5,000, under ZBB, the department manager would need to justify why they still need $10,000 for office supplies in the current period.