Which of the following is correct?

A. Traditional budgeting focuses on goals and objectives
B. Zero-based budgeting produces a single level of appropriation for an activity
C. Traditional budgeting starts with last year’s funding appropriation
D. Zero-based budgeting does not systematically consider alternatives to current operations

Correct Answer:

Option C – Traditional budgeting starts with last year’s funding appropriation

Explanation

Zero-Based budgeting and traditional budgeting are the two predominantly used budgeting techniques. Zero-based budgeting is a budgeting method where current year’s budget is prepared from the scratch i.e. taking the base as zero. The old and the new activities of the business are ranked according to their importance and based on that, resources are allocated to each activity without considering the past budgets or achievements.

Traditional budgeting is a method of preparation of the budget in which the last year’s budget is taken as the base. Current year’s budget is prepared by making changes to previous year’s budget by adjusting the expenses based on the inflation rate, consumer demand, market situation etc.

In case of zero-based budgeting, it is easy to eliminate an existing item or add a new item to the current budget, as zero-based budgeting is a creation of entirely new budget from the ground. In other words, zero-based budgeting is more flexible in nature.