Which statement describes bottom-up budgeting?

Which statement describes bottom-up budgeting?

• A. Based on cost estimates of composite parts
• B. Based on major categories and experience
• C. Based on random guesses
• D. Based on fixed budgets

Answer: (A)

Bottom-up budgeting builds the budget from the ground up by gathering cost estimates for each component or part of the project. Each area or task estimates its own costs—labor, materials, equipment, and other resources—and these figures are added together to form the total budget. This approach tends to be detailed and realistic because it reflects the actual costs of every part, rather than applying a single, top-level figure to the whole project.

The option described as based on cost estimates of composite parts matches this method exactly. It captures the essence of bottom-up budgeting: start with the cost of individual parts and sum them to get the overall budget.

In contrast, budgeting based on major categories and experience points toward a higher-level, top-down method rather than a detailed bottom-up process. Random guesses obviously do not constitute a budgeting approach, and fixed budgets imply a pre-set amount rather than deriving the budget from the costs of each component.