Certified Professional Public Buyer (CPPB) Practice Test

What budgeting method organizes expenditures and revenue according to decision packets for service levels?

1. Zero-based budgets

2. Incremental budgets

3. Flexible budgets

4. Activity-based budgets

The correct answer is: Zero-based budgets

The budgeting method that organizes expenditures and revenue according to decision packets for service levels is zero-based budgeting. This approach requires that every expense must be justified for each new period, starting from a "zero base." Rather than using the previous year's budget as a baseline, zero-based budgeting necessitates that all activities are evaluated and prioritized according to their costs and benefits. In this method, decision packets are created that outline different levels of service and their corresponding costs. This allows organizations to align their budget with strategic goals and to allocate funds based on the necessity and effectiveness of each program or activity, rather than historical spending habits. It encourages departments to think critically about their spending and to develop plans that can be managed and adjusted according to priorities. The other methods, such as incremental budgeting, while simpler and based on historical figures, do not focus on systematic evaluation and justification for all expenditures from the ground up. Flexible budgets adjust based on actual activity levels and are not inherently tied to service level decision packets. Activity-based budgets focus on the costs of activities necessary to produce goods or services but may not strictly adhere to the same zero-based principles regarding justification of expenses.