ExpertMedium2 marksMultiple Choice
ACCA · Question 18 · Budgeting
Section A
ReliefNet, a disaster relief NGO, has decided to switch from incremental budgeting to Zero-Based Budgeting (ZBB) for its administrative departments.
Which of the following are benefits of implementing Zero-Based Budgeting? (Select ALL that apply)
Section A
ReliefNet, a disaster relief NGO, has decided to switch from incremental budgeting to Zero-Based Budgeting (ZBB) for its administrative departments.
Which of the following are benefits of implementing Zero-Based Budgeting? (Select ALL that apply)
Answer options:
A.
It eliminates historical inefficiencies by not assuming past budgets are automatically justified.
B.
It is much faster and less time-consuming to prepare than incremental budgeting.
C.
It automatically guarantees an increase in the budget for all departments.
D.
It forces managers to justify all expenditures and evaluate alternative ways of operating.
How to approach this question
Think about what 'Zero-Based' means. You start from zero and must prove why you need the money, rather than just adding 5% to last year's budget.
Full Answer
Zero-Based Budgeting (ZBB) requires managers to justify all budgeted expenditures from scratch (a zero base), rather than basing the budget on previous years' spending. This eliminates embedded historical inefficiencies and forces the evaluation of alternative, more cost-effective operations. However, it is highly time-consuming and resource-intensive.
Common mistakes
Assuming ZBB is a quick process or that it guarantees cost reductions (it only guarantees cost justification).
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