A company's marketing department had a budget of $200,000 last year. This year, it plans to increase the budget by 5% to account for inflation. Which budgeting approach is the company using?

Flexible budgeting adjusts the budget based on actual activity levels or changes in volume, allowing for variations in income and expenses. In this case, the company is not adjusting the budget based on varying activity levels, but rather applying a fixed percentage increase to last year's budget.

Zero-based budgeting requires that all expenses must be justified for each new period, starting from a "zero base." This means that every function within the company is analyzed for its needs and costs, rather than simply adjusting from a prior budget. Since the company is not reassessing all expenditures but only increasing last year's budget, this is not applicable.

Activity-based budgeting focuses on the costs of activities necessary to produce and sell products or services. It requires a detailed analysis of activities and their costs rather than a simple percentage increase based on past budgets. The company’s method does not involve this level of analysis.