ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What is Incremental Budgeting? Incremental budgeting is a type of a budgeting process that is based on the idea that a new budget can best be developed by making only some marginal changes to the current budget.

Detailed explanation-2: -Incremental budgeting starts by using the expenditures from the previous year as estimated expenses for the current fiscal year. Increments of varied amounts are then added or subtracted to these expenses to show a budget increase or decrease for the coming fiscal year over the previous fiscal year.

Detailed explanation-3: -Incremental budgeting is the traditional budgeting method whereby the budget is prepared by taking the current period’s budget or actual performance as a base, with incremental amounts then being added for the new budget period.

Detailed explanation-4: -A rolling budget is continually updated to add a new budget period as the most recent budget period is completed. Thus, the rolling budget involves the incremental extension of the existing budget model. By doing so, a business always has a budget that extends one year into the future.

Detailed explanation-5: -Incremental Budgeting Example 650, 000 with 70% variable costs and 30% fixed costs. The variable cost for product X1 is 60% and for X2 40%. The company is planning to budget this year with additional information as follows: All costs will increase by 3% due to the inflationary effect.