Question 47

Zero-based budgeting bases budget requests on specific, measurable outcomes.

This approach ensures that all expenses must be justified for each new period, thereby fostering accountability and strategic planning.

A) It eliminates the need to track expenses.

This statement is incorrect because zero-based budgeting actually emphasizes the need for careful tracking of all expenses. Each budget cycle requires a detailed justification of each expense, making tracking even more critical.

B) It requires less effort than traditional budgeting.

This option is also incorrect. Zero-based budgeting typically requires more effort than traditional budgeting since every expense must be justified from scratch, rather than simply adjusting previous budgets based on historical data.

C) It bases budget requests on specific, measurable outcomes.

This answer is correct because zero-based budgeting focuses on justifying each budget request through clear, measurable outcomes. This approach helps organizations align their spending with strategic goals and ensures resources are allocated effectively.

D) It removes the need for emergency savings.

This statement is incorrect as zero-based budgeting does not eliminate the need for emergency savings. Organizations still need to maintain financial reserves for unexpected expenses, regardless of the budgeting method used.

Conclusion

Zero-based budgeting is advantageous because it requires budget requests to be justified based on specific, measurable outcomes, enhancing accountability and strategic resource allocation. All other options fail to capture the essence of zero-based budgeting, either misrepresenting its purpose or incorrectly stating its effects on financial management practices.