Page 99 - BA2 Integrated Workbook - Student 2017

Budgeting

5.2 Periodic budgets

A periodic budget shows the costs and revenue for one period of time, e.g. one year
and is updated on a periodic basis, e.g. every 12 months.

5.3 Incremental budgeting

The CIMA Terminology defines incremental budgeting as 'a method of
budgeting based on the previous budget or actual results, adjusting for
known changes and inflation, for example'.

The traditional approach to budgeting is to take the previous year's budget and to
add on a percentage to allow for inflation and other cost increases. In times of
recession, the opposite process will take place, i.e. last year's budget minus a certain
percentage.

Advantages Disadvantages

 Easy  No justifications
required
 Quick
 Managers will
 Less likely to ensure they
miss items spend the whole
budget

 Budgetary slack

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