Multiple-Choice Questions (MCQ)

1. Which budgeting approach is known for listing expenditures as individual line items?

A) Performance Budget

B) Zero-Based Budget

C) Line-Item Budget

D) Program and Planning-Programming Budget

Answer: C) Line-Item Budget

2. The Line-Item Budget approach is also known as the:

A) Traditional or object-of-expenditure approach

B) Outcome-oriented approach

C) Marginal cost approach

D) Efficiency approach

Answer: A) Traditional or object-of-expenditure approach

3. Which is a main advantage of the Line-Item Budget approach?

A) It encourages spending less than the budgeted amount.

B) It emphasizes program outcomes over costs.

C) It provides a simple and easy-to-understand format.

D) It focuses on long-term benefits over short-term gains.

Answer: C) It provides a simple and easy-to-understand format

4. In the Line-Item Budget approach, what is a key disadvantage?

A) It is too complex for small organizations.

B) It provides incentives to save funds.

C) It fails to show the relationship between expenditures and benefits.

D) It is focused on long-term objectives.

Answer: C) It fails to show the relationship between expenditures and benefits.

5. The Performance-Based Budgeting (PBB) approach primarily focuses on:

A) Inputs only

B) Outcomes and efficiency

C) Legal compliance

D) Short-term objectives

Answer: B) Outcomes and efficiency

6. Which of the following is a disadvantage of Performance Budgeting?

A) It is easily prepared and understood.

B) It cannot measure non-quantitative goals effectively.

C) It ignores the outcomes of activities.

D) It offers simplicity and ease of use.

Answer: B) It cannot measure non-quantitative goals effectively.

7. The Program and Planning-Programming Budgeting (PPB) approach is advantageous
because it:

A) Does not require coordination among subunits

B) Is organized by administrative units instead of programs

C) Allows for frequent updates and long-range planning

D) Has no flexibility in management

Answer: C) Allows for frequent updates and long-range planning

8. In Zero-Based Budgeting (ZBB), each activity must be:

A) Evaluated based on past performance

B) Justified as if it were new every year

C) Funded at the highest level each time

D) Exempt from decision packages

Answer: B) Justified as if it were new every year

9. A major advantage of ZBB is that:

A) It is inexpensive to implement

B) It helps identify duplicate activities within programs

C) It only requires minimal paperwork

D) It does not require top management involvement

Answer: B) It helps identify duplicate activities within programs

10. Which approach to budgeting might face challenges due to high costs and resistance from
managers?

A) Line-Item Budgeting

B) Performance Budgeting

C) Program and Planning-Programming Budgeting (PPB)

D) Zero-Based Budgeting (ZBB)

Answer: D) Zero-Based Budgeting (ZBB)

11. Which of the following budgeting approaches is known to focus heavily on short-term goals,
potentially at the expense of long-term objectives?

A) Program and Planning-Programming Budget (PPB)

B) Line-Item Budget

C) Performance-Based Budget

D) Zero-Based Budget

Answer: B) Line-Item Budget

12. One major disadvantage of the Line-Item Budget approach is that:

A) It encourages managers to cut costs

B) It does not incentivize saving funds

C) It reduces paperwork significantly

D) It focuses on future planning

Answer: B) It does not incentivize saving funds

13. The Performance Budget approach is sometimes less popular because:

A) It does not provide detailed spending records

B) It is easy to prepare and understand

C) It requires measurable quantitative goals

D) It is inflexible in administrative structure

Answer: C) It requires measurable quantitative goals

14. In the PPB approach, decision-makers are encouraged to analyze:

A) Past expenditures only

B) Marginal benefits and costs

C) Each department’s historical data

D) Standardized line-item expenditures

Answer: B) Marginal benefits and costs

15. The narrative description in Performance Budgeting helps decision-makers to:

A) Improve legal compliance

B) Identify conflicts or duplications in activities

C) Simplify the budget preparation process

D) Limit the scope of budgeting to specific departments

Answer: B) Identify conflicts or duplications in activities

16. A Zero-Based Budgeting (ZBB) approach requires departments to prepare a minimum of
how many decision packages?

A) One

B) Two

C) Three

D) Four

Answer: C) Three

17. In the ZBB approach, the 'base-level' decision package is designed to:

A) Extend services beyond current levels

B) Maintain services at the current level

C) Provide only the most basic service needs

D) None of the above

Answer: C) Provide only the most basic service needs

18. One benefit of Zero-Based Budgeting (ZBB) is that:

A) It reduces the overall information available to managers

B) It ensures long-term spending is prioritized over short-term needs

C) It forces managers to view their responsibilities more objectively

D) It is simpler and less costly than other methods

Answer: C) It forces managers to view their responsibilities more objectively

19. In the Performance-Based Budget approach, managers are evaluated based on:

A) Achievement of goals and control of costs

B) Quantity of budget requests submitted

C) Overall reduction in departmental expenses

D) Percentage of budget funds not spent

Answer: A) Achievement of goals and control of costs

20. The PPB approach promotes flexibility in management by:

A) Mandating line-item reporting

B) Organizing appropriations as lump sums

C) Requiring detailed line-item expenditures

D) Limiting the ability to adjust programs

Answer: B) Organizing appropriations as lump sums

21. Which of the following best describes an advantage of the Line-Item Budget approach?

A) It incentivizes long-term cost-saving measures.

B) It provides a clear, easy-to-use format for budget users.

C) It groups expenditures by overall organizational goals.

D) It encourages frequent updates to programs.

Answer: B) It provides a clear, easy-to-use format for budget users.

22. The main goal of Performance-Based Budgeting is to:

A) Group expenditures according to administrative units

B) Emphasize efficiency and outcomes

C) Encourage spending over saving

D) Focus exclusively on short-term spending

Answer: B) Emphasize efficiency and outcomes

23. An example of a measurement used in Performance-Based Budgeting would be:

A) Line items by expenditure type

B) The number of cases handled

C) Lump-sum appropriations

D) Total organizational expenses only

Answer: B) The number of cases handled

24. A disadvantage of the Performance-Based Budget approach is that:

A) It lacks emphasis on organizational goals

B) It is easier to understand than the Line-Item approach

C) It may require budget analysts for effective use

D) It discourages managerial involvement

Answer: C) It may require budget analysts for effective use

25. In the PPB approach, the basic objectives of the organization are:

A) Ignored in favor of administrative units

B) Central to the organization’s activities and spending plans

C) Measured primarily by line items

D) Evaluated through zero-basis analysis

Answer: B) Central to the organization’s activities and spending plans

26. Which of the following statements is true about Zero-Based Budgeting (ZBB)?

A) ZBB begins each year’s budget with the previous year’s allocation.

B) ZBB requires justification for each activity as if it were new.

C) ZBB only applies to private organizations.

D) ZBB does not involve ranking decision packages.

Answer: B) ZBB requires justification for each activity as if it were new.

27. In ZBB, a ‘current services package’ is designed to:

A) Expand services beyond the current level

B) Maintain service delivery at its current level

C) Ensure only the most basic service needs

D) Cut down on overall spending

Answer: B) Maintain service delivery at its current level

28. What is a common limitation of the PPB approach?

A) It is too simple for complex organizations

B) It requires minimal participation from managers

C) It is costly and time-consuming to implement

D) It avoids long-term benefit analysis

Answer: C) It is costly and time-consuming to implement

29. Which of the following best describes the term ‘decision packages’ in ZBB?

A) Groups of unrelated budget items

B) Bundles of choices at various spending levels

C) Forecasts of annual expenses

D) Lists of past spending by line items

Answer: B) Bundles of choices at various spending levels

30. The PPB approach is characterized by:

A) A strict focus on line-item expenditures

B) Lump-sum appropriations allowing flexible management

C) Excluding long-range planning in budgeting

D) Grouping expenditures only by individual departments

Answer: B) Lump-sum appropriations allowing flexible management

31. Which characteristic of the Line-Item Budget approach may inadvertently promote
inefficiency in budgeting?

A) Encouragement of inter-departmental collaboration

B) Focus on incremental increases in budget allocations

C) Emphasis on achieving long-term program outcomes

D) Mandated use of performance indicators

Answer: B) Focus on incremental increases in budget allocations

32. Performance-Based Budgeting can face challenges in public organizations because:

A) It focuses only on financial records and legal compliance

B) Not all objectives can be quantified in measurable terms

C) It requires minimal staff participation for effectiveness

D) Budget allocations are limited to administrative needs

Answer: B) Not all objectives can be quantified in measurable terms

33. An advantage of the PPB approach is that it supports comprehensive planning by:

A) Emphasizing minimal resource use over time

B) Aligning program objectives directly with organization-wide goals

C) Mandating line-item accountability

D) Encouraging reduction in budget analysis effort

Answer: B) Aligning program objectives directly with organization-wide goals

34. Which budgeting approach allows for the integration of a marginal analysis that assesses
costs against incremental program benefits?

A) Line-Item Budgeting

B) Performance-Based Budgeting

C) Program and Planning-Programming Budgeting (PPB)

D) Zero-Based Budgeting

Answer: C) Program and Planning-Programming Budgeting (PPB)

35. One of the main managerial advantages of Zero-Based Budgeting is that it:

A) Reduces the complexity of decision-making

B) Enables managers to focus solely on established programs

C) Encourages an objective assessment of program necessity

D) Simplifies the process of annual budget renewal

Answer: C) Encourages an objective assessment of program necessity

36. A primary reason Zero-Based Budgeting may face resistance is because:

A) It is widely regarded as an obsolete method

B) Managers may be unwilling to re-evaluate existing programs

C) It lacks flexibility in budgeting for new initiatives

D) It does not align with long-term financial planning

Answer: B) Managers may be unwilling to re-evaluate existing programs

37. Which budgeting approach is designed to support flexibility by allowing appropriations to be
organized as lump sums rather than as specific line items?

A) Performance-Based Budgeting (PBB)

B) Line-Item Budgeting

C) Program and Planning-Programming Budgeting (PPB)

D) Zero-Based Budgeting

Answer: C) Program and Planning-Programming Budgeting (PPB)

38. Which feature of the Performance-Based Budgeting approach provides valuable insight into
the efficiency of a program’s operation?

A) Classification of expenditure categories

B) Narrative descriptions of outputs achieved

C) Detailed focus on legal and procedural compliance

D) Comparison of past and current line-item expenses

Answer: B) Narrative descriptions of outputs achieved

39. A primary limitation of the PPB approach is that it requires:

A) Minimal managerial involvement

B) Significant analytical capability to assess long-term impacts

C) Standardized processes without flexibility

D) Simplified decision-making for managers

Answer: B) Significant analytical capability to assess long-term impacts

40. In the context of Performance-Based Budgeting, which of the following is essential for
evaluating program effectiveness?

A) Expenditure data organized by line items

B) Measurement of both inputs and outcomes

C) Focus on short-term objectives

D) Reduced emphasis on detailed cost analysis

Answer: B) Measurement of both inputs and outcomes

41. The Line-Item Budget approach’s focus on individual expense categories may lead to:

A) Easier monitoring of program outcomes

B) Challenges in assessing overall program effectiveness

C) Increased incentive to save funds

D) Better understanding of long-term impacts

Answer: B) Challenges in assessing overall program effectiveness

42. Performance-Based Budgeting (PBB) is highly effective for organizations that:

A) Have goals that can be easily measured in quantitative terms

B) Require a low level of managerial involvement

C) Prioritize line-item accuracy over outcome tracking

D) Do not evaluate program effectiveness regularly

Answer: A) Have goals that can be easily measured in quantitative terms

43. In the PPB approach, what must all activities be linked to in order to maintain budgeting
consistency?

A) Line-item financial records

B) The basic objectives of the organization

C) Cost estimates from previous years

D) Minimal base-level funding

Answer: B) The basic objectives of the organization

44. Zero-Based Budgeting (ZBB) differs from traditional budgeting methods because:

A) It relies on past year’s budget allocations

B) Each program is treated as new and must be justified annually

C) It reduces the amount of information available to managers

D) It only applies to specific private-sector organizations

Answer: B) Each program is treated as new and must be justified annually

45. The ‘enhanced package’ in Zero-Based Budgeting (ZBB) is designed to:

A) Provide only the minimum level of service needed

B) Expand services beyond the current level

C) Maintain current levels of service

D) Ensure that funds are only allocated for new initiatives

Answer: B) Expand services beyond the current level

46. A major advantage of the PPB approach is its ability to:

A) Reduce paperwork associated with budget analysis

B) Integrate long-range planning into budgeting

C) Focus on individual line-item expenditures

D) Minimize time spent on decision-making processes

Answer: B) Integrate long-range planning into budgeting

47. One reason the Line-Item Budget approach is often favored in nonbusiness organizations is
because:

A) It emphasizes performance-based outcomes

B) It is simpler and more straightforward to prepare and understand

C) It is designed specifically for maximizing long-term benefits

D) It automatically incorporates flexibility in fund allocation

Answer: B) It is simpler and more straightforward to prepare and understand

48. In the Performance-Based Budget approach, which factor is critical for decision-makers in
assessing whether to continue an activity?

A) Detailed listing of line-item expenditures

B) The outcomes achieved relative to the costs

C) The simplicity of expenditure tracking

D) The potential for reduced paperwork

Answer: B) The outcomes achieved relative to the costs

49. Which of the following is a common disadvantage of Zero-Based Budgeting?

A) It discourages managerial accountability

B) It may require a considerable amount of paperwork

C) It excludes analysis of service effectiveness

D) It limits the comparison between current and past spending

Answer: B) It may require a considerable amount of paperwork

50. A significant limitation of the PPB approach is that:

A) It discourages collaboration among organizational subunits

B) It can be difficult to reach consensus on organizational goals

C) It emphasizes short-term planning over long-term impacts

D) It is designed primarily for private sector use

Answer: B) It can be difficult to reach consensus on organizational goals

True or False Questions

1. The Line-Item Budget approach is primarily concerned with expenditure control rather than
long-term decision-making.

Answer: True

2. Performance-Based Budgeting (PBB) focuses only on inputs, such as costs, rather than on
the outcomes achieved.

Answer: False

3. One disadvantage of the Line-Item Budget approach is that it may encourage managers to
spend their entire budget allocation to avoid future cuts.

Answer: True

4. In the PPB approach, all budgeted funds are organized by programs instead of by
administrative units.

Answer: True
5. The PPB approach does not support long-range planning or regular updates to programs.

Answer: False

6. Zero-Based Budgeting (ZBB) requires that each decision unit be ranked according to the
perceived benefit of its activities.

Answer: True

7. A key advantage of the Performance Budget approach is that it makes it easy for legislative
bodies to understand the goals of each program.

Answer: True

8. In the Line-Item Budget, expenditure categories are grouped according to functions and
programs.

Answer: False
9. Zero-Based Budgeting (ZBB) starts each year’s budget from scratch, with no reference to the
previous budget.

Answer: True

10. A disadvantage of Performance-Based Budgeting is that it requires participation from all

levels, which some organizations may find challenging to achieve.

Answer: True

11. The Line-Item Budget approach is often criticized for lacking incentives for managers to
economize on spending.

Answer: True

12. Performance-Based Budgeting is effective for nonbusiness entities, even when their goals
cannot be quantified.

Answer: False
13. In the PPB approach, subunits within an organization are required to coordinate their
resources.

Answer: True

14. Zero-Based Budgeting (ZBB) requires no additional paperwork compared to other budgeting
methods.

Answer: False

15. One disadvantage of the PPB approach is that it is difficult to gain consensus on
organizational goals.

Answer: True

16. The Performance Budget approach does not include narrative descriptions of activities.

Answer: False
17. Zero-Based Budgeting (ZBB) often faces resistance from managers due to its high
paperwork demands and the need for detailed justification.

Answer: True

18. In the Line-Item Budget approach, each expenditure category is grouped by its functional
purpose.

Answer: False

19. The PPB approach encourages regular updates to programs and long-term planning.

Answer: True

20. In Performance-Based Budgeting, only the costs of activities are measured, not their
outcomes.

Answer: False
21. One of the disadvantages of the Line-Item Budget approach is that it often prioritizes legal
compliance over useful information for decision-makers.

Answer: True

22. In Performance-Based Budgeting, outcomes of programs and activities are closely

monitored along with costs.

Answer: True

23. The PPB approach groups expenditures by individual line items rather than by programs.

Answer: False

24. Zero-Based Budgeting requires that each department or unit prepare a base-level, current
service, and enhanced package.

Answer: True
25. The Line-Item Budget approach organizes budget units by department, not by program.

Answer: True

26. Performance-Based Budgeting focuses more on the cost of activities than on the outputs
produced.

Answer: False

27. In Zero-Based Budgeting, decision packages are ranked based on perceived benefits.

Answer: True

28. The PPB approach does not require managers to coordinate resources among subunits.

Answer: False
29. An advantage of Zero-Based Budgeting is that it can identify duplicate activities within a
program.

Answer: True

30. The PPB approach encourages decision-makers to consider alternatives that maximize
resources and benefits.

Answer: True

31. In the Line-Item Budget approach, each item of expenditure is considered independently of
its impact on overall goals.

Answer: True

32. Performance-Based Budgeting allows for the identification of cost savings by comparing
outputs with associated costs.

Answer: True
33. The PPB approach discourages organizations from aligning their activities with overarching
objectives.

Answer: False

34. Zero-Based Budgeting requires every department to begin each budget cycle by considering
zero funds allocated.

Answer: True

35. Performance-Based Budgeting is best suited for organizations where goals can be
quantified and tracked effectively.

Answer: True

36. The Line-Item Budget approach encourages managers to spend as much as possible to
avoid budget cuts.

Answer: True
37. The PPB approach requires subunits within an organization to coordinate and share
resources to achieve common goals.

Answer: True

38. Zero-Based Budgeting typically focuses more on reducing expenditures than on identifying
benefits.

Answer: False

39. A disadvantage of Performance-Based Budgeting is the potential need for specialized staff
to handle budget analysis.

Answer: True

40. In the PPB approach, lump-sum appropriations are organized by programs rather than
specific line items.

Answer: True
41. The Line-Item Budget approach’s focus on individual expense categories may lead to
difficulties in assessing the effectiveness of specific programs.

Answer: True

42. Performance-Based Budgeting is often favored in organizations where accountability is

highly valued, as it emphasizes measurable outcomes.

Answer: True

43. The PPB approach focuses on administrative units rather than aligning resources with
programmatic goals.

Answer: False

44. Zero-Based Budgeting is especially advantageous for organizations that need to prioritize all
programs and evaluate their relevance annually.

Answer: True
45. The narrative component of the Performance-Based Budget provides detailed qualitative
information that aids in understanding the purpose and scope of each activity.

Answer: True

46. In PPB, decision-makers are discouraged from analyzing alternatives and must adhere
strictly to predefined program activities.

Answer: False

47. Zero-Based Budgeting helps identify essential programs by requiring that each activity
justify its relevance from a zero base each year.

Answer: True

48. The PPB approach’s flexibility is enhanced by allowing programs to be reviewed for marginal
costs and benefits.

Answer: True
49. One drawback of Performance-Based Budgeting is that it may oversimplify organizational
goals by focusing only on budgetary compliance.

Answer: False

50. In the Line-Item Budget approach, the simplicity of its structure may limit its effectiveness
for strategic, high-level planning.

Answer: True