Which budget type requires justification for all expenses and starts from a zero base?

• A. Flexible
• B. Fixed
• C. Activity-based
• D. Zero-based

Answer: (D)

Starting from zero and requiring justification for every expense is the hallmark of zero-based budgeting. In this approach, no cost is automatically carried forward from the previous period. Every line item must be defended in terms of its necessity and how it supports current objectives, which pushes managers to question value, prioritize funding, and reallocate resources to the most critical activities. For example, a department proposing a new IT system must justify the full cost and expected benefits, including implementation and ongoing support, as if the project were being considered for the first time. This level of scrutiny helps uncover waste and align spending with strategic goals, unlike budgets that simply adjust last year’s figures or set fixed amounts regardless of activity. So, the description describes zero-based budgeting.