What characterizes zero budgeting?

Zero-based budgeting is characterized by starting from scratch for each budgeting period. This approach requires managers to justify all expenses for the upcoming period, rather than simply adjusting previous budgets. Each function within an organization is analyzed for its needs and costs, and all expenditures must be explicitly approved, regardless of prior budget allocations. This ensures that resources are allocated based on current needs and priorities, rather than historical spending patterns, potentially leading to more efficient budgeting and resource allocation.

The other options suggest methodologies that do not align with the principles of zero-based budgeting. For example, using last year's expenditures as a base reflects a traditional budgeting approach known as incremental budgeting. Utilizing fixed costs only does not capture the comprehensive review of all expenses required in zero-based budgeting. Meanwhile, continuously adjusting forecasts is more in line with a flexible budgeting approach, which differs from the distinct starting point emphasized in zero-based budgeting.