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ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting

A company's budget is prepared by senior management and handed down to department managers without consultation. Which budgeting approach does this describe?

This is imposed budgeting, also called top-down budgeting. Senior management sets the targets and passes them to department managers without consultation. Participative budgeting is the opposite, because managers help set their own budgets. Zero-based and incremental methods concern how the figures are derived rather than who decides them.

  1. AImposed budgetingCorrect
  2. BParticipative budgeting
  3. CZero-based budgeting
  4. DIncremental budgeting

Explanation

In an imposed (top-down) approach, senior management sets the budget targets and communicates them to managers without their involvement. Participative budgeting involves managers in setting their own budgets, so it is the opposite of this situation. Zero-based and incremental describe how figures are built up, not who sets them.

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