Which of the following is a major disadvantage of incremental budgeting?
Answer and explanation
Correct answer: A. It can perpetuate past inefficiencies because last year's costs are assumed to be justified
- Step 1: Incremental budgets start from last year's figures plus an adjustment.
- Step 2: If past spending included waste, it carries on into the new budget.
Answer
It can perpetuate past inefficiencies because last year's costs are assumed to be justified.
Why not the others: That describes zero-based budgeting. It can be used for control, although it risks continuing inefficiency. It can be used for any costs.
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