Incremental Budgeting

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Recommended: Functions of budgeting

The purpose of this essay is to evaluate how “Incremental budgeting is still the most popular form of budgeting because it works”. Firstly, this essay will explain the different types of budgeting. Secondly, the essay will compare and contrast incremental budgeting to zero-based budgeting (ZBB) and rolling budgeting. Finally, this essay will conclude to say where incremental budgeting is not the most popular form of budgeting.

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 This form of budgeting may become out of date, and not longer relate to the work that is being carried out.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.

An...

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... 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.

Works Cited
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].

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