ExpertMedium2 marksMultiple Choice
ACCA · Question 10 · Budgeting Methods
Section A
GovDept, a public sector organization, is transitioning from traditional incremental budgeting to Zero-Based Budgeting (ZBB) to cut unnecessary costs.
Which TWO of the following are characteristics of Zero-Based Budgeting?
Section A
GovDept, a public sector organization, is transitioning from traditional incremental budgeting to Zero-Based Budgeting (ZBB) to cut unnecessary costs.
Which TWO of the following are characteristics of Zero-Based Budgeting?
Answer options:
A.
Budgets are prepared by taking the previous year's actuals and adding a percentage for inflation.
B.
Every proposed activity must be justified in its entirety, starting from a base of zero.
C.
Activities are grouped into 'decision packages' which are then ranked by importance.
D.
It is generally faster and less resource-intensive to implement than incremental budgeting.
How to approach this question
Identify the core mechanics of ZBB: starting from zero, justifying everything, and using decision packages.
Full Answer
Zero-Based Budgeting (ZBB) rejects the assumption that current activities will automatically continue. Managers must justify their entire budget request from zero. This is done by breaking operations down into 'decision packages' which are evaluated and ranked based on their cost-benefit to the organization.
Common mistakes
Assuming ZBB is a quick process. It is actually highly administrative and time-consuming.
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