Which budgeting approach allows departments to prioritize based on current needs rather than historical data?

The correct approach that allows departments to prioritize based on current needs rather than relying on historical data is zero-based budgeting. This method requires that all expenses must be justified for each new period starting from a "zero base," as opposed to incremental budgeting, which typically adjusts the previous year's budget based on historical figures.

With zero-based budgeting, every function within an organization is analyzed for its needs and costs, enabling departments to assess their priorities based on current conditions and requirements rather than what was previously budgeted. This can lead to more efficient allocation of resources as it encourages managers to think critically about their expenditures and align them with current organizational goals.

In contrast, incremental budgeting simply adds or subtracts a percentage from the prior year's budget, which may not adequately reflect the actual needs or priorities of the current period. Other methods, such as flexible budgeting, adapt to changes in activity levels and can help in tracking performance but don't specifically require a reevaluation of expenditures from a zero base each time a budget is created. Variable budgeting focuses on costs that change with activity levels, but like incremental, it may not fully prioritize current needs over historical data.