International Baccalaureate (IB) Practice Exam

What is a primary advantage of using a zero-based budget?

1. It allows for unlimited spending without accountability

2. It simplifies the budgeting process

3. Every dollar is assigned a specific purpose

4. It is less disciplined than other budgeting methods

The correct answer is: Every dollar is assigned a specific purpose

Using a zero-based budget is fundamentally characterized by the principle that every dollar is assigned a specific purpose, which is why this option is the correct choice. This budgeting method requires that all expenses must be justified for each new period, starting from a "zero base." This means that each line item in the budget must be evaluated and validated, ensuring that every expense directly supports the goals of the organization or the individual's financial objectives. By mandating that each dollar has a purpose, a zero-based budget promotes fiscal responsibility and strategic allocation of resources. This approach encourages individuals and organizations to prioritize their financial decisions and can lead to more efficient use of funds, as unnecessary or outdated expenses are often eliminated. This is particularly advantageous in environments where financial resources are limited and must be optimized. In contrast, the other options present concepts that do not align with the key principles of zero-based budgeting. Unlimited spending without accountability is contrary to the discipline that zero-based budgeting entails. Simplifying the budgeting process does not reflect the complexity of reevaluating all expenses periodically based on current needs. Lastly, the notion that it is less disciplined fails to capture the rigorous assessment required by this budgeting approach. Thus, the correct answer highlights the structured financial management that zero-based budgeting facilitates.