ICAEW BIP · Chapter 6 · Question 3 of 11
What is the main weakness of incremental budgeting?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) It tends to carry forward past inefficiencies because existing activities are not challenged
Explanation
Incremental budgeting takes last year's budget or actual results and adjusts them for expected changes such as inflation. It is quick and simple, but builds in any slack and waste from earlier periods and does not ask whether activities are still needed. Justifying every activity from zero describes zero-based budgeting.
More Budgeting: purposes and approaches MCQs
- Q5A company prepares a 12-month budget and, at the end of each quarter, adds a further quarter so that a 12-month budget always exists. What…
- Q6Which of the following is a recognised disadvantage of participative (bottom-up) budgeting?
- Q7Activity-based budgeting (ABB) differs from traditional budgeting mainly because it:
- Q8What is a fixed budget?
- Q9Which document sets out the instructions, procedures, timetable and responsibilities for preparing the budget?