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Incremental budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Incremental budgeting

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • October 5, 2021 at 1:58 pm #637019
    ahmadimam120
    Member
    • Topics: 18
    • Replies: 13
    • ☆

    Sir I wanted to ask u that is it true when preparing incremental budgets any particular item of revenue or cost is only taken into account or adjusted for in this year’s budget only if that item of revenue or cost constitutes some kind of an increment i.e an item of revenue or cost is only adjusted for if there is an increase in revenue or cost in this year as compared to the previous year??? And what if the revenue or cost has decreased in this year as compared to previous year will that be taken into account if there is a decrease?

    Because Increment means an INCREASE of some kind?

    October 5, 2021 at 4:14 pm #637043
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    With incremental budgeting to prepare the budget for next year, we take this years figures and adjust for expected changes in the level of activity and for changes in the selling price and changes in costs.

    Although strictly you are correct in that increment means an increase, if it was the case that we were expecting lower activity and/or lower revenue or costs, then we would take that into account and reduce the figures in the budget.

    However that is not very likely in exam questions because most businesses will usually be budgeting on increasing activity and usually there will be inflation rather than deflation 🙂

    October 6, 2021 at 7:51 am #637110
    ahmadimam120
    Member
    • Topics: 18
    • Replies: 13
    • ☆

    Sir so can i take the meaning that incremental budgeting adjusts for an expected increase only from the exam point of view and anykind of decrease is not adjusted for in an incremental budget?

    October 6, 2021 at 8:10 am #637114
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    No. A decrease is unlikely but it would be taken into account (as I wrote in the second paragraph of my previous reply).

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