A Traditional Budgeting Approach : Incremental Budgeting Method

1625 Words Dec 10th, 2015 7 Pages
Under a Traditional Budgeting approach, incremental budgeting method is relatively simple, it is based on past levels without improvement. Because they do not add analysis and retain the original cost as last period, so it may cause an unnecessary expenditure. The deficiency of incremental budget has been improved to some extent by fixed budget. A fixed budget is a financial plan that remains unchanging, irrespective of the levels of activity (Wouters, Selto, and Hilton, 2012). The Administrator provides fixed targets and allocates them to the suitable organization unit or individual in an independent mode. Fixed Budget is suitable for the business where there are less opportunities of fluctuations in the existing conditions or if the business is not affected by the change in the external elements and the prediction can be achieved easily to present close outcome (Glautier, 2001). It also works as a scale to manage costs. But unexpected changes in the economy, the frequently changing market environment and new competitor entering can result in significant differences between plan and actual, therefore fixed budget is too rigid in the dynamic environment and capital market.

Rigid of traditional budgeting approach
Because of the development of a dynamic environment, the movement from manufacturing to a knowledge or service type has been gaining wider acceptance through the individual dedication to organization performance (Ryan, 2007). In addition, the use of the…
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