Professional in Human Resources (PHR) Practice Exam

Which budgeting method requires justification of expenditures for each new period?

1. Incremental budgeting

2. Deficit budgeting

3. Zero-based budgeting

4. Flexible budgeting

The correct answer is: Zero-based budgeting

The correct budgeting method that requires justification of expenditures for each new period is zero-based budgeting. This approach begins from a "zero base," meaning that every function within an organization is analyzed for its needs and costs. Every department must justify its budget requests in each budgeting period, rather than just adjusting the previous period’s budget. This method focuses on evaluating all expenses and ensuring that they are aligned with the current objectives and priorities of the organization. Zero-based budgeting encourages efficiency and helps in eliminating unnecessary costs, as every expense must be justified anew. This can lead to more strategic allocation of resources, ensuring that funds are being utilized effectively in accordance with the organization’s goals. Other budgeting methods do not necessarily require this level of justification. Incremental budgeting typically adjusts the previous year's budget, often leading to the continuation of existing spending practices without a thorough re-evaluation. Deficit budgeting refers to planning for expenditures that will exceed revenue, which does not inherently involve justification of every line item. Flexible budgeting adjusts expenses based on varying levels of production or activity but does not focus on justifying each expense from scratch as required in zero-based budgeting.