Incremental Budgeting

Question 1

What is meant by incremental budgeting?

Answer 1

Incremental budgeting is budget that is based on the previous year’s budget and are normally adjusted for inflation.

Question 2

Advantages of incremental budgeting

Answer 2

*It is simple and cheap.
*It is relatively quick to administer.

Question 3

Limitations of incremental budgeting

Answer 3

• It does not identify inefficient operations
  *Budgetary slack once introduced will be carried forward.
  *It is not suitable for changing environments, as it is based on the past and assumes that activities will continue the same.