Incremental budgeting
Incremental budgeting starts with a previous budget or actual result and adjusts for expected changes such as activity, prices or specific initiatives. It is relatively quick and can suit stable operations, but can preserve obsolete activities, inefficiencies and budgetary slack. Separate genuine changes from an automatic percentage increase and review whether the base remains appropriate. An incremental budget need not be fixed: it can be combined with other planning and control approaches.
Worked example
Last year’s controllable cost is $200,000. A justified 4% price rise and a $10,000 new activity give a preliminary $218,000 budget, before reviewing whether old activities should continue.
Common mistake
Do not assume every historical cost deserves to be carried forward or confuse incremental budgeting with relevant incremental cost for a decision.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | APM | Direct | September 2026–June 2027 |
| ACCA | PM | Direct | September 2026–June 2027 |