What budgeting approach requires justifying every line item from zero each period?

What budgeting approach requires justifying every line item from zero each period?

• A. Incremental budgeting
• B. Zero-based budgeting
• C. Rolling budgeting
• D. Activity-based budgeting

Answer: (B)

Zero-based budgeting requires rethinking every expense from the ground up. In this approach, each line item is justified as if it were new each period, starting at zero and building the budget from scratch. This forces managers to defend the necessity, amount, and priority of every item rather than simply adjusting last year’s totals. The result is tighter control over costs and a clearer alignment of spending with current goals, though it can be more time-consuming than other methods. How it differs from the others: incremental budgeting uses the previous year’s numbers as a baseline and only adjusts them, so many items are not fully re-evaluated. Rolling budgeting continuously updates forecasts, not starting from zero for each item. Activity-based budgeting assigns costs to activities that drive those costs, rather than requiring every line item to be justified anew.

Zero-based budgeting requires rethinking every expense from the ground up. In this approach, each line item is justified as if it were new each period, starting at zero and building the budget from scratch. This forces managers to defend the necessity, amount, and priority of every item rather than simply adjusting last year’s totals. The result is tighter control over costs and a clearer alignment of spending with current goals, though it can be more time-consuming than other methods.

How it differs from the others: incremental budgeting uses the previous year’s numbers as a baseline and only adjusts them, so many items are not fully re-evaluated. Rolling budgeting continuously updates forecasts, not starting from zero for each item. Activity-based budgeting assigns costs to activities that drive those costs, rather than requiring every line item to be justified anew.