If a company wants to avoid relying on last year's cost structure, which budgeting method would it choose?

• A. Zero-based budgeting
• B. Incremental budgeting
• C. Flexible budgeting
• D. Rolling budgeting

Answer: (A)

Zero-based budgeting starts from a clean slate each period. Instead of using last year’s spending as the baseline, every expense must be justified anew, and resources are allocated to meet current objectives. This forces a fresh evaluation of needs and can eliminate embedded costs, making it the best choice when the goal is to avoid carrying forward last year’s cost structure.

Incremental budgeting, by contrast, takes the previous year’s totals and nudges them up or down, so it naturally leans on the prior cost mix.

Flexible budgeting adjusts costs based on actual activity levels, which helps reflect changes in volume, but it doesn’t inherently discard the previous year’s allocations.

Rolling budgeting continually adds future periods to the plan, extending the budget horizon; while forward-looking, it doesn’t specifically demand rebuilding the cost structure from the ground up.