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Zero Based Budgeting Definition:

Zero based budgeting is a budget-planning procedure that requires each manager to justify the authorization to spend money on an activity. It does not allow to use the money already spent by managers on an activity as starting point. Zero based budgeting assumes that zero will be spent on each activity - thus the term "zero base".

For the preparation of a zero based budget, managers are usually required to consider two types of alternatives (1) different ways of performing the same activity and (2) different levels of effort in performing the activity.

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