ExpertMedium2 marksMultiple Choice
ACCA · Question 11 · Budgeting and Control
Section A
A public sector municipality is considering switching from incremental budgeting to Zero-Based Budgeting (ZBB) for its community services departments.
Which TWO of the following are recognized advantages of implementing Zero-Based Budgeting?
Section A
A public sector municipality is considering switching from incremental budgeting to Zero-Based Budgeting (ZBB) for its community services departments.
Which TWO of the following are recognized advantages of implementing Zero-Based Budgeting?
Answer options:
A.
It is a quick and inexpensive process to implement annually.
B.
It forces managers to identify and justify cost-effective ways to deliver services.
C.
It eliminates historical inefficiencies that are carried forward in incremental budgets.
D.
It guarantees that all departments will receive the same funding as the previous year.
How to approach this question
Recall the definition of ZBB: starting from a 'zero base' and justifying all expenditures. Think about the pros (efficiency, justification) and cons (time, cost).
Full Answer
Zero-Based Budgeting requires managers to justify all budgeted expenditures from scratch (a zero base). This removes historical slack and inefficiencies (Option C) and promotes a questioning attitude that seeks cost-effective alternatives (Option B). However, it is very time-consuming and costly, making Option A incorrect.
Common mistakes
Assuming ZBB is easy or quick to implement.
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