Which budgeting approach requires justification only for expenses that exceed those of the previous budget cycle?

• A. Spending-ceiling model
• B. Spending-reduction model
• C. Zero-based budgeting
• D. Fixed budgeting

Answer: (A)

The main idea here is how budgeting methods handle approvals when spending grows above what was approved previously. A spending-ceiling approach sets a fixed cap on what can be spent. Within that cap, routine expenditures typically don’t need new justification, but any request that would push total spending past the previous budget’s level (the ceiling) requires justification. That means you only justify increases over what was approved in the prior budget cycle.

In contrast, a spending-reduction model aims to cut overall spending and would require justification for spending changes to meet smaller totals across the board. Zero-based budgeting starts from zero each period, so every expense must be justified anew, not just increases over the last cycle. Fixed budgeting uses the same set amount every period, with no automatic emphasis on past spending increases.