Which of the following is a characteristic of zero-based budgeting?

Which of the following is a characteristic of zero-based budgeting?

• A. Budgets are adjusted based on historical spending patterns
• B. Programs and expenses are evaluated for justification in each new period
• C. Expenditures are based on a percentage of last year’s budget
• D. It includes incremental financial assumptions from past periods

Answer: (B)

Zero-based budgeting is characterized by the requirement that all expenses must be justified for each new period, rather than being based on historical data or preceding budgets. This approach involves analyzing all functions within an organization to ensure that all allocations or expenditures are warranted, regardless of past spending patterns. Each department begins the budgeting process from a "zero base," meaning that they must build their budget from the ground up rather than starting with the previous year's figures. This practice encourages thorough scrutiny and prioritization of spending, promoting more efficient allocation of resources aligned with current and strategic needs. By justifying expenditures anew each period, organizations can reassess their priorities and cut unnecessary costs, leading to a more effective budgeting process. The other options describe methods more aligned with traditional budgeting techniques, which hinge more on historical data and incremental adjustments rather than re-evaluation from a zero base. Therefore, the characteristic of evaluating programs and expenses for justification in each new period clearly defines zero-based budgeting and underscores its strategic focus on current needs rather than historical precedent.

Zero-based budgeting is characterized by the requirement that all expenses must be justified for each new period, rather than being based on historical data or preceding budgets. This approach involves analyzing all functions within an organization to ensure that all allocations or expenditures are warranted, regardless of past spending patterns. Each department begins the budgeting process from a "zero base," meaning that they must build their budget from the ground up rather than starting with the previous year's figures.

This practice encourages thorough scrutiny and prioritization of spending, promoting more efficient allocation of resources aligned with current and strategic needs. By justifying expenditures anew each period, organizations can reassess their priorities and cut unnecessary costs, leading to a more effective budgeting process.

The other options describe methods more aligned with traditional budgeting techniques, which hinge more on historical data and incremental adjustments rather than re-evaluation from a zero base. Therefore, the characteristic of evaluating programs and expenses for justification in each new period clearly defines zero-based budgeting and underscores its strategic focus on current needs rather than historical precedent.