Question

Distinguish between traditional budgeting and zero based budgeting.

Answer 1

Aspect	Traditional budgeting	Zero-based budgeting
Definition	A budgeting approach where the current year’s budget is prepared based on the previous year’s budget, with incremental changes.	A budgeting approach where every expense must be justified for each new period, starting from a “zero base” without considering past budgets.
Basis of budgeting	Historical data and previous year’s expenditures.	Fresh assessment of needs and priorities, without reference to past budgets.
Focus	Focuses on cost control by adjusting past budgets.	Focuses on cost efficiency and value for money by justifying each expense.
Flexibility	Less flexible, tends to reinforce existing patterns of spending.	Highly flexible, allows for reallocation of resources based on current priorities.
Cost control	Focuses on controlling costs based on past trends.	Focuses on eliminating unnecessary costs and optimizing resources.
Example	Government department budgets that adjust for inflation and incremental growth.	Corporate budgets where every department must justify their entire budget from scratch each year.