Final answer:
Zero-based budgeting is a budgeting process where every expense must be justified for each new period, starting from a “zero base” and focusing on an organization's objectives.
Step-by-step explanation:
The budgeting process that involves justifying resource requirements based on an analysis and prioritization of organizational objectives is called zero-based budgeting (B.).
Unlike traditional budgeting methods, which may simply adjust the previous year’s budget to account for inflation or changes in revenue, zero-based budgeting starts from a “zero base.”
Each function within the organization is analyzed for its needs and costs, and all expenditures must be justified for each new period.
This approach aligns spending with company goals and focuses on cost-benefit analysis for every item before it is included in the budget.
Budgeting can be a difficult task because it often involves making tough choices about where to allocate limited resources.
The necessity to forgo certain luxuries or desirable items like daily trips to Starbucks or a Netflix subscription presents an opportunity cost, which is a key consideration in budget planning.
Making budgetary decisions generally involves marginal decision-making and understanding diminishing marginal utility, emphasizing the trade-offs between the benefits and costs of additional increments of goods or services.