ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
Which budgeting approach is MOST likely to reduce budgetary slack because managers must justify every item of expenditure from scratch?
Zero-based budgeting is most likely to reduce slack. Every cost item must be justified from a zero base each period, so padded allowances are challenged. Incremental budgeting just uplifts prior figures, which carries existing slack forward unchallenged.
- AIncremental budgeting
- BZero-based budgetingCorrect
- CImposed budgeting based on last year's figures
- DFixed budgeting with a percentage uplift
Explanation
Zero-based budgeting requires each activity to be justified afresh, so inflated cost allowances inherited from previous periods are exposed. Incremental budgets simply add a percentage to past figures, carrying forward any existing slack.
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