ACCA Performance Management (F5) Certification Practice Exam

What type of budget is characterized as a top-down approach?

1. Participatory budget

2. Zero-based budget

3. Imposed budget

4. Incremental budget

The correct answer is: Imposed budget

The type of budget characterized by a top-down approach is the imposed budget. In this budgeting method, senior management or a central authority determines the budgetary allocations and targets without seeking input from lower levels of the organization. This means that departmental managers and employees typically have limited or no influence over the budget process. The rationale behind imposed budgets is that they can streamline the budgeting process, as decisions are made quickly at higher management levels, often aligning budgets closely with strategic objectives set by executives. However, this method can lead to discontent among staff, as it may not reflect the actual operational needs or input of the teams that will be working within those budget constraints. Participatory budgets encourage involvement from various levels of management, promoting a bottom-up approach where input and feedback play a crucial role in the budgeting process. Zero-based budgets require building budgets from the ground up, justifying each line item as if starting from zero, which typically involves more detailed input and engagement. Incremental budgets adjust previous budgets based on anticipated changes and, while they might not be strictly top-down, still allow for some departmental inputs. Therefore, the imposed budget stands out distinctly as the one aligned with a stricter top-down directive style.