Certified Professional Public Buyer (CPPB) Practice Test

What characterizes line item budgets?

1. Budgets that are flexible and adaptable

2. Fixed budgets with money allocated for a specific period

3. Budgets based on the performance of the previous year

4. Budgets that require no documentation for spending

The correct answer is: Fixed budgets with money allocated for a specific period

Line item budgets are characterized as fixed budgets with money allocated for specific categories or items for a set period. This approach provides a detailed breakdown of the budgeted expenses, where funds must be spent according to the defined categories. Essentially, it allocates a specific amount of funding for each line item, such as salaries, office supplies, or equipment. This method helps organizations track expenditures closely and stay within their financial limits for each category. The rigidity of line item budgets does mean they have limited flexibility, making adjustments for unanticipated needs or changes in circumstances more challenging. This contrasts with more flexible budgeting methods that can allow for reallocating funds across various line items without the same level of scrutiny. Furthermore, while previous performance might inform budget allocations, line item budgets do not inherently reflect last year's performance but instead focus on predetermined funding amounts. Lastly, documentation for spending is typically required in line item budgets to maintain accountability and ensure funds are spent in accordance with the budget, contradicting the notion that no documentation is needed.