Incremental budgeting is a traditional way of budgeting. It is budgeting process that uses previous year’s budget or the actual performance, which incremental amounts are added or subtracted to the new budgeting period. Incremental budgeting takes the fixed cost into consideration; it is a process where the firm uses current and historical budgets. This form of budgeting is typically used in the public sector or commercial organisations. Incremental budgeting is used where there is a certainty; businesses nowadays are not certain as there are lots of global competitions.
Incremental budgeting has advantages, it is simple to understand, which makes it easier for business to implement the system. In addition, this budget is stable and few alterations are made, which makes it easier to make predictions. Consequently, managers can operate their departments on a constant basis. Therefore, this shows that disagreement can be avoided.
On the other hand, there are disadvantages. This form of budgeting may become out of date, and not longer relate to the work that is being carried out. Therefore, this can distort the figures in the forecast. Managers can overestimate their figures to obtain a forecast which would be easier to work towards. In turn, this allows the managers to achieve a favourable result.
... middle of paper ...
... was asked to find an effective way of budgeting for company I will know what to do as I have gained knowledge from this essay. Another thing I learnt was to never leave my assignment to the last minute as it will not help me get the best marks.
Charles, T.H, George, F. & Srikant, M. D.(1997) Cost Accounting: A Managerial Emphasis. 9th edn. Prentice Hall.
ERIC (2010) ’Zero-based Budgeting: The experience to date’. Public Personal Management. May- June.
Google timeline (2010) ‘History of incremental budgeting’ Available at: http://www.google.co.uk/search?hl=en&tbo=p&tbs=tl:1&q=history+of+rolling++budgeting&btnG=Search&meta=&aq=f&oq= [Accessed: 8th February, 2010].
IOMA(2010) Rolling Forecasts Nourish Growth and Change at Volvo, Rhodia and Bulmer. Available at:http://www.ioma.com/issues/FAPR/2005_5/1591882-1.html [Accessed: 10th February, 2010].
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- 1. What is zero-based budgeting. This is a budgeting process that requires managers to prepare budgets each period from ground zero for all the operations. Each period budget can feed off previous approved period budget. Under this method every activity must be justified and cost explained that generates revenue for a company. All costs are justified each time a budget is completed. Why do most retailers utilize incremental budgeting. Retailers use incremental budgeting because it is a simple process and easy for store managers to produce.... [tags: Christmas and holiday season, Retailing]
1175 words (3.4 pages)
- Line-item Budgeting Line item budgeting categorizes various expenses and places them in list format on a document for budgetary purposes. This type of budgeting is considered the heartbeat of budgeting due to the systematic method by which it controls revenue and expenses, this is made evident when Tyer and Willand (1992), pointed out “Statutory or administrative controls could be imposed on the transfer of funds from one-line item to another, or between broad categories of expenditure.” According to Schick (1971), “line item budgets were attractive to legislative officials because they did not focus explicit attention on substantive policy issues or choices.” Advantages/Disadvantages An... [tags: Budget, Budgets, Zero-based budgeting]
840 words (2.4 pages)
- The word “capital” implies long term. Capital funds are long-term sources of funds. Capital budgeting is investing in long-lived assets. (Financial-dictionary)Capital Budgeting (also known as investment appraisal) is the most important tool in corporate finance to determine whether a company’s long term investment are worthwhile or not. It is also known as investment a Working capital is the funds necessary to support the operation of the long-lived assets. Various examples will be used to illustrate Capital Budgeting procedure is the way toward arranging and controlling capital consumption inside a firm.... [tags: Net present value, Internal rate of return]
1718 words (4.9 pages)
- The word “capital” implies long term. Capital funds are long-term sources of funds. Capital budgeting is investing in long-lived assets. (Financial-dictionary) Capital Budgeting (also known as investment appraisal) is the most important tool in corporate finance to determine whether a company’s long term investment are worthwhile or not. It is also known as investment a Working capital is the funds necessary to support the operation of the long-lived assets. Various examples will be used to illustrate Capital Budgeting procedure is the way toward arranging and controlling capital consumption inside a firm.... [tags: Net present value, Internal rate of return]
1667 words (4.8 pages)
- ... Incremental Budgeting This is where the current budget is taken as the starting point for preparing the annual budget for next year and a percentage increase or decrease is made to either the previous budgetary estimates or the actual results, Appiah-Mensah (1993). Adjustments may be for expected changes in prices due to inflation, volumes and product mix, etc. Line item budgeting In line budget the expenditures are detailed out but the activities undertaken are given little attention. The focus is on the nature of spending but not the purpose for which the expenditure is to be incurred.... [tags: management, control, activity based budgeting]
657 words (1.9 pages)
- Budgets has been widely used by a lot of organizations since it was first introduced, because it can helps managers to properly plan and control the business’s resources. Successful control mechanisms as Schick believes are the essential to budgetary development (Gray, Jenkins, and Segsworth, 2002, p.11). However, recently the use of budgets to control organizations has been the subject to criticise and debate (Hansen et al., 2003 cited in Libby and Lindsay, 2010). In this era that full of unpredictable environments has make it even harder for a business to achieve the targets set in the budgets.... [tags: Budget, Zero-based budgeting, Budgets]
1772 words (5.1 pages)
- This deceptively straightforward question is guaranteed to generate a lot of class discussion. The reason for the debate is that each student has a slightly different concept of “cost” in mind. By letting the discussion run for five minutes, it becomes clear that what people mean by “cost” is often in the eye of the beholder and depends on what decision they are contemplating. The most frequent answer is $121,200. This is the amount of cash used to operate the club. But this excludes actual physical depreciation.... [tags: Budget, Zero-based budgeting, Depreciation, Costs]
824 words (2.4 pages)
- Capital Budgeting (also known as investment appraisal) is the most important tool in corporate finance to determine whether a company’s long term investments are worthwhile or not. It is also known as investment a Working capital are the funds necessary to support the operation of the long-lived assets. Various examples will be used to illustrate Capital Budgeting process is the process of planning and controlling capital expenditure within a firm. Capital Budgeting is over a period greater than the period considered under an operating budget.... [tags: Net present value, Internal rate of return]
1637 words (4.7 pages)
- In this essay I will describe the main characteristics of the political and institutional context of Chile and its budget system, trying to identify some relations with the most important budget theories reviewed in the lectures. In the next place, I will recognise which of the institutional reforms advocated by Blöndal (2003) have been implemented in the country, and which have not. Finally, I will present some conclusions. General context Chile is a democratic presidential republic with a multi-party system that, in practice, is a two-party one due to the electoral arrangement.... [tags: Politics, Institution, Budgent System]
1483 words (4.2 pages)
- Unlike traditional budgets, zero-based budgeting requires the justification of each and every expense outlined in the budget. Zero based budget planning starts from the zero base line and each element of the budget is analyzed. Managers or department heads, if a government entity, will justify the reasoning behind their budget request. Most budgets are incremental which automatically increases the previous year’s budget. Depending on the review of the budget a department may or may not get a budget increase.... [tags: Finance]
712 words (2 pages)