Which statement about zero-based budgeting is accurate?

Which statement about zero-based budgeting is accurate?

• A. It requires one to use only historical data
• B. It relies on increasing the previous year's budget
• C. It requires justification for all costs from scratch
• D. It is identical to rolling budgeting

Answer: (C)

Zero-based budgeting starts from a clean slate for every cost in the budget period, so each expenditure must be justified from scratch. This means every item gets a business case, including alternatives and expected benefits, rather than assuming it should continue at the same level as last year. By requiring justification for all costs, resources are allocated to activities that genuinely support current objectives and strategic priorities, rather than simply carrying forward past spending. Historical data isn’t the sole basis in this approach—it may inform decisions, but it doesn’t determine the budget. It also isn’t about simply increasing last year’s budget, which is characteristic of incremental budgeting. And it isn’t the same as rolling budgeting, which continuously updates forecasts and plans but does not reset everything to zero each period.

Zero-based budgeting starts from a clean slate for every cost in the budget period, so each expenditure must be justified from scratch. This means every item gets a business case, including alternatives and expected benefits, rather than assuming it should continue at the same level as last year. By requiring justification for all costs, resources are allocated to activities that genuinely support current objectives and strategic priorities, rather than simply carrying forward past spending.

Historical data isn’t the sole basis in this approach—it may inform decisions, but it doesn’t determine the budget. It also isn’t about simply increasing last year’s budget, which is characteristic of incremental budgeting. And it isn’t the same as rolling budgeting, which continuously updates forecasts and plans but does not reset everything to zero each period.