ExpertMedium2 marksMultiple Choice
ACCA · Question 11 · Budgeting and control
Section A
MetroWater, a public utility company, is transitioning from incremental budgeting to Zero-Based Budgeting (ZBB) for its maintenance department.
Which TWO of the following are characteristics of Zero-Based Budgeting?
Section A
MetroWater, a public utility company, is transitioning from incremental budgeting to Zero-Based Budgeting (ZBB) for its maintenance department.
Which TWO of the following are characteristics of Zero-Based Budgeting?
Answer options:
A.
It takes the previous year's budget and adjusts it for inflation.
B.
It requires all expenses to be justified for each new period, starting from a base of zero.
C.
It is generally faster and less resource-intensive to implement than incremental budgeting.
D.
It helps identify and eliminate inefficient or obsolete operations.
How to approach this question
Recall the definition of ZBB: starting from scratch and justifying everything. Contrast this with incremental budgeting.
Full Answer
Zero-Based Budgeting (ZBB) requires managers to justify all budgeted expenditures from scratch (zero base) rather than simply adjusting the previous year's budget. This process forces a review of all activities, helping to eliminate inefficiencies and obsolete operations. However, it is highly time-consuming.
Common mistakes
Confusing ZBB with incremental budgeting or assuming it is a quick process.
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