What is the starting point when using zero-based budgeting?

• A. The amount of each expense is zero
• B. The amount equals last year's actual plus inflation
• C. The amount is based on planned improvements
• D. The amount is based on department head's initial proposal

Answer: (A)

Zero-based budgeting starts from a clean slate, with every expense set to zero and then justified from the ground up. This approach requires managers to defend the necessity, costs, and benefits of each item as if it were new, rather than simply carrying over last year’s numbers. By building the budget from zero, resources are examined on their current value and relevance, which helps remove unnecessary costs and prioritize where funds are truly needed.

This differs from starting points used in other methods—for example, using last year’s actual spending plus inflation would be incremental budgeting, where existing levels are adjusted rather than rebuilt from scratch. Relying on planned improvements still begins from evaluating needs, but does not capture the fundamental reset to zero that zero-based budgeting enforces. Similarly, starting from a department head’s initial proposal reflects a top-down approach, not the zero-based concept of rebuilding every line item from zero.