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ACCA Applied Skills · Performance Management · Budgetary systems and types of budget

A manager argues that next year's budget for the maintenance department should simply be this year's figure increased by expected inflation of 3%. Which budgeting approach is the manager proposing?

The manager is proposing incremental budgeting, because the new budget is built from last year's figure with an uplift for inflation. It does not require existing activities to be re-justified, which distinguishes it from zero-based budgeting.

  1. AIncremental budgetingCorrect
  2. BZero-based budgeting
  3. CActivity-based budgeting
  4. DRolling budgeting

Explanation

Incremental budgeting starts from the previous period's budget or actual results and adds or subtracts an adjustment, here 3% for inflation. Zero-based budgeting would instead require every activity to be justified from nothing. Rolling budgeting concerns continually updating the budget period, not how amounts are set.

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