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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

A manufacturing firm in Pune prepares its budget for the coming year but, instead of starting afresh, takes the previous year's actual figures and adjusts them for expected changes. Which budgeting approach is this?

The approach is incremental budgeting. The firm uses last year's actual figures as the base and adjusts them for expected changes, rather than justifying every item from zero as in zero base budgeting or continuously adding a new period as in rolling budgets.

  1. AIncremental budgetingCorrect
  2. BZero base budgeting
  3. CRolling budgeting
  4. DPerformance budgeting

Explanation

Incremental budgeting starts from the previous period's actuals or budget and adds or subtracts expected changes. Zero base budgeting rejects this and justifies every activity from scratch. A rolling budget is continually updated by adding a new period as one expires, which is not described here.

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