Question Tag: Incremental Budgeting

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PM – May 2021 – L2 – Q4 – Budgeting and Budgetary Control

Develop a redrafted budget based on probability-based revenue and assess incremental versus zero-based budgeting.

Question

Adrac Community School was founded by Adrac Community Resident Association of
Garki, Abuja, Nigeria. The school is being supervised by a board of governors made up
of selected experienced members of the community. The school is not allowed to charge
the pupils any fee as it is a community project donated to assist members of the
community.
Adrac Community Residents Association pays the school ₦21,000 for each child
registered at the beginning of the school year, which is September 1, and ₦18,000 for
any child joining the school part-way through the year. The school does not have to
refund the money to the association if a child leaves the school part-way through the
year. The number of pupils registered at the school on September 1, 2019 is 720, which
is 10% lower than the previous year. Based on past experience, the probabilities for the
number of pupils starting the school part-way through the year is as follows:
The school‟s headmistress normally prepares annual budget for consideration of the
board of governors. Since she is not too comfortable with figures, she does not
understand how to use the probability distribution provided for her annual budget.
Therefore, she just used simple average for her calculation of number of pupils expected
to join late. The revenue budget for 2019/2020 submitted by the headmistress is as
follows:

The headmistress uses incremental budgeting to budget for her expenditure, taking
actual expenditure for the previous year as a starting point and simply adjusting it for
inflation, as shown below

Notes
i. N600,000 of the costs for the year ended 30 June 2019 related to standard
maintenance checks and repairs that have to be carried out by the school every
year in order to comply with the local government health and safety standards.
These are expected to increase by 3% in the coming year. In the year ended 30
June 2019, N280,000 was also spent on redecorating some of the classrooms. There will be no redecoration in the coming year.

ii. One teacher earning a salary of N520,000 left the school on 30 June 2019 and
there are no plans to replace her. However, a 2% pay rise will be given to all staff
with effect from 1 December 2019.

iii. The full N1,300,000 actual costs for the year ended 30 June 2019 related to
improvements made to the school building. This year, the canteen is going to be
substantially improved, although the extent of the improvements and level of
service to be offered to pupils is still under discussion. There is a 0·7 probability
that the cost will be N1,450,000 and a 0·3 probability that it will be N800,000.
These costs must be paid in full before the end of the year ending 30 June 2020.

The school‟s board of governors, who review the budget, are concerned that the budget
surplus has been calculated incorrectly. They believe that it should have been calculated
using expected income, based on the probabilities provided, and using expected expenditure, based on the information provided in notes i to iii. They believe that incremental budgeting is not a reliable tool for budget setting in the school since, for
the last three years, there have been shortfalls of cash despite a budget surplus being
predicted. Since the school has no other source of funding available to it, these
shortfalls have had serious consequences, such as the closure of the school kitchen for a considerable period in the last school year, meaning that no meals were available to pupils. This is thought to have been the cause of the 10% fall in the number of pupils registered at the school on 1 September 2019.

Required:
a. Redraft the school’s budget for the year ending June 30, 2020, per the board’s recommendations. (6 Marks)
b. Discuss the advantages and disadvantages of using incremental budgeting. (4 Marks)
c. Describe the three main steps in preparing a zero-based budget. (6 Marks)
d. Discuss the extent to which zero-based budgeting could improve the budgeting process for Adrac Community School. (4 Marks)

Answer

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Tags: Budgeting, Community Funding, Incremental Budgeting, Revenue Projection, Zero-Based Budgeting
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: MAY 2021

PSA&F – Nov 2019 – L2 – Q2a – The Budgeting Process in the Public Sector

Comparison of incremental and zero-based budgeting and explanation of zero-based budget stages.

Question

With continuing pressure to control costs and maintain efficiency, the time has come for all public sector organisations to embrace zero-based budgeting. There is no longer a place for incremental budgeting in any organisation, particularly those in public sector, where zero-based budgeting is far more suitable.

Required:

Explain the terms ‘incremental budgeting’ and ‘zero-based budgeting.’
Identify the five main stages involved in preparing zero-based budgets.

Answer

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Tags: Budgeting Process, Incremental Budgeting, Public Sector Efficiency, Zero-Based Budgeting
Level: Level 2

Topic: The Budgeting Process in the Public Sector
Series: NOV 2019

MI – May 2016 – L1 – SA – Q12 – Budgeting

Identify the term used for the intentional overestimation of expenses or underestimation of revenue in a budget.

Question

The intentional overestimation of expenses and/or underestimation of revenue in a budget is the definition of:

A. Budget slack
B. Sub-optimization
C. Budget targets
D. Incremental budgeting
E. Budget setting

Answer

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Tags: Budget Setting, Budget Slack, Budget Targets, Incremental Budgeting, Sub-optimization
Level: Level 1

Topic: Budgeting
Series: MAY 2016

MA – Aug 2022 – L2 – Q3b – Budgetary control

This question focuses on explaining how a rolling budget works and calculating a revised budget for Baya Ltd.

Question

The Finance Manager of Baya Ltd has been criticised for using an incremental budget method in preparing the company’s budget. She, however, needs to respond to the issues raised at a board meeting and as a result, she is considering using different budgeting methods for the year-end 31 December 2022. She has asked you, the Management Accountant, to do some preliminary work to help her decide on which of the methods to use. She believes a rolling budget would be ideal for the fast-growing Baya Ltd in a relatively high inflationary country.

Baya Ltd’s incremental budget for the year-end 31 December 2022 is given below:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Revenue (GH¢’000)	17,520	17,958	18,407	18,867	72,752
Cost of sales	9,636	9,877	10,124	10,377	40,014
Gross profit	7,884	8,081	8,283	8,490	32,738
Distribution costs	(1,577)	(1,616)	(1,657)	(1,698)	(6,548)
Administration	(4,214)	(4,214)	(4,214)	(4,214)	(16,856)
Operating profit	2,093	2,251	2,412	2,578	9,334

The actual figures for quarter 1 (which has just been completed) are:

On the basis of the quarter 1 results, sales volume growth of 3% per quarter is now expected.

Required:
i) Explain how Baya Ltd will operate a rolling budget.
(2 marks)

ii) Recalculate the quarterly rolling budget for Baya Ltd for the last three quarters of the year 2022 and the first quarter of 2023.
(8 marks)

Answer

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Tags: Budgetary Control, Incremental Budgeting, Rolling Budget
Level: Level 2

Topic: Budgetary control
Series: AUG 2022

MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

Question

Kankum Industries is considering switching from Incremental Budgeting to Activity-Based Budgeting (ABB) because of the argued pricing specificity of the ABB approach. The Chairman of the Finance Sub-Committee of the board, who does not have an accounting background, has contacted you for clarification on some key issues relating to ABB in order to assist in his explanation to the board.

Required:

i) Differentiate between Activity-Based Budgeting and Incremental Budgeting. (3 marks)

ii) Explain the process in ABB. (3 marks)

iii) State TWO (2) arguments in favour and TWO (2) arguments against ABB. (4 marks)

Answer

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Tags: Activity Based Budgeting, Budgeting Process, Incremental Budgeting
Level: Level 2

Topic: Activity-based costing
Series: APR 2023

MA – May 2017 – L2 – Q2c – Budgetary control

Identify and explain three steps in the preparation of a Zero-Based Budget.

Question

Zero-based budgeting attempts to improve upon incremental type of budgeting, which is perceived to carry over inefficiencies from previous periods. It allows for budget reductions and permits the re-allocation of resources from low to high priority programs. Critics are of the opinion that such an approach or process of budgeting can be cumbersome in its execution.

Required:

Identify and explain THREE steps in the preparation of Zero-Based Budget. (6 marks)

Answer

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Tags: Budget Preparation, Incremental Budgeting, Resource Allocation, Zero-Based Budgeting
Level: Level 2

Topic: Budgetary control
Series: MAY 2017

PSAF – Nov 2018 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a budget for 2019 using 2018 as a base and analyze the budgeting approach.

Question

a) You are the head of the Budget department of the Ministry of Works. The Ministry intends to prepare the budget for the 2019 fiscal year and has intended to use the 2018 budget as a base. Below is the detail of the 2018 Budget:

Assumptions for 2019 Budget: i) The Ministry has introduced new equipment, leading to a 36% increase in IGF, but government grants will be cut by GH¢9,600,000. ii) Established post salary will increase by GH¢3,920,000, non-established post salaries will increase to GH¢4,960,000, and allowances will increase by 15%. iii) Utility cost will decrease to GH¢9,700,000; repairs cost will increase by 9%; and training and seminar cost will increase to GH¢17,820,000. iv) The Ministry expects to acquire new equipment, increasing the equipment cost by GH¢150,000,000.

Required: Using the 2018 Budget as a base and assumptions made, prepare the Budget for the 2019 fiscal year. (10 marks)

b)
i) Identify and explain the type of Budget approach used by the Ministry in the Budget preparation. (2 marks)

ii) Explain THREE (3) merits and THREE (3) demerits of the Budget approach adopted in the preparation of the 2019 Budget. (3 marks)

iii) Explain an alternative approach you would have suggested to the Ministry for their subsequent budget preparation and explain THREE (3) reasons why that approach is appropriate under the circumstance. (5 marks)

Answer

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Tags: Budget Preparation, Fiscal Year 2019, Incremental Budgeting, Public Sector
Level: Level 2

Topic: Public sector fiscal planning and budgeting
Series: NOV 2018

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

Question

a) Explain the following:
i) Incremental Budgeting (2 marks)
ii) Zero-Based Budgeting (2 marks)
iii) Activity-Based Budgeting (2 marks)

b) Cox Ltd is a manufacturing company that produces a body shaping drink for the African market. The company employs a marginal costing system as an integral part of its reporting systems. During the reporting period, there was no opening or closing inventory. The company produces its budgeted and actual results for December 31, 2022, as follows:

	Budget	Actual
Production/sales (units)	2,000	1,400
Sales (GH¢)	60,000	42,400
Variable Costs:
Direct material (GH¢)	(20,000)	(13,200)
Direct labour (GH¢)	(10,000)	(7,600)
Variable overhead (GH¢)	(6,000)	(4,400)
Contribution (GH¢)	24,000	17,200
Fixed cost (GH¢)	(20,000)	(20,800)
Net profit/loss (GH¢)	4,000	(3,600)

Required:
Prepare a budget that will be useful for management cost control purposes and briefly comment on the company’s performance in December 2022. (14 marks)

Answer

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Tags: Activity Based Budgeting, Cost Control, Flexible Budget, Incremental Budgeting, Zero-Based Budgeting
Level: Level 1

Topic: Budgeting, Marginal Costing and Absorption Costing
Series: JULY 2023

PM – May 2021 – L2 – Q4 – Budgeting and Budgetary Control

Develop a redrafted budget based on probability-based revenue and assess incremental versus zero-based budgeting.

Question

The headmistress uses incremental budgeting to budget for her expenditure, taking
actual expenditure for the previous year as a starting point and simply adjusting it for
inflation, as shown below

ii. One teacher earning a salary of N520,000 left the school on 30 June 2019 and
there are no plans to replace her. However, a 2% pay rise will be given to all staff
with effect from 1 December 2019.

Answer

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Tags: Budgeting, Community Funding, Incremental Budgeting, Revenue Projection, Zero-Based Budgeting
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: MAY 2021

PSA&F – Nov 2019 – L2 – Q2a – The Budgeting Process in the Public Sector

Comparison of incremental and zero-based budgeting and explanation of zero-based budget stages.

Question

Required:

Explain the terms ‘incremental budgeting’ and ‘zero-based budgeting.’
Identify the five main stages involved in preparing zero-based budgets.

Answer

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Tags: Budgeting Process, Incremental Budgeting, Public Sector Efficiency, Zero-Based Budgeting
Level: Level 2

Topic: The Budgeting Process in the Public Sector
Series: NOV 2019

MI – May 2016 – L1 – SA – Q12 – Budgeting

Identify the term used for the intentional overestimation of expenses or underestimation of revenue in a budget.

Question

The intentional overestimation of expenses and/or underestimation of revenue in a budget is the definition of:

A. Budget slack
B. Sub-optimization
C. Budget targets
D. Incremental budgeting
E. Budget setting

Answer

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Tags: Budget Setting, Budget Slack, Budget Targets, Incremental Budgeting, Sub-optimization
Level: Level 1

Topic: Budgeting
Series: MAY 2016

MA – Aug 2022 – L2 – Q3b – Budgetary control

This question focuses on explaining how a rolling budget works and calculating a revised budget for Baya Ltd.

Question

Baya Ltd’s incremental budget for the year-end 31 December 2022 is given below:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Revenue (GH¢’000)	17,520	17,958	18,407	18,867	72,752
Cost of sales	9,636	9,877	10,124	10,377	40,014
Gross profit	7,884	8,081	8,283	8,490	32,738
Distribution costs	(1,577)	(1,616)	(1,657)	(1,698)	(6,548)
Administration	(4,214)	(4,214)	(4,214)	(4,214)	(16,856)
Operating profit	2,093	2,251	2,412	2,578	9,334

The actual figures for quarter 1 (which has just been completed) are:

On the basis of the quarter 1 results, sales volume growth of 3% per quarter is now expected.

Required:
i) Explain how Baya Ltd will operate a rolling budget.
(2 marks)

ii) Recalculate the quarterly rolling budget for Baya Ltd for the last three quarters of the year 2022 and the first quarter of 2023.
(8 marks)

Answer

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Tags: Budgetary Control, Incremental Budgeting, Rolling Budget
Level: Level 2

Topic: Budgetary control
Series: AUG 2022

MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

Question

Required:

i) Differentiate between Activity-Based Budgeting and Incremental Budgeting. (3 marks)

ii) Explain the process in ABB. (3 marks)

iii) State TWO (2) arguments in favour and TWO (2) arguments against ABB. (4 marks)

Answer

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Tags: Activity Based Budgeting, Budgeting Process, Incremental Budgeting
Level: Level 2

Topic: Activity-based costing
Series: APR 2023

MA – May 2017 – L2 – Q2c – Budgetary control

Identify and explain three steps in the preparation of a Zero-Based Budget.

Question

Required:

Identify and explain THREE steps in the preparation of Zero-Based Budget. (6 marks)

Answer

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Tags: Budget Preparation, Incremental Budgeting, Resource Allocation, Zero-Based Budgeting
Level: Level 2

Topic: Budgetary control
Series: MAY 2017

PSAF – Nov 2018 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a budget for 2019 using 2018 as a base and analyze the budgeting approach.

Question

Required: Using the 2018 Budget as a base and assumptions made, prepare the Budget for the 2019 fiscal year. (10 marks)

b)
i) Identify and explain the type of Budget approach used by the Ministry in the Budget preparation. (2 marks)

ii) Explain THREE (3) merits and THREE (3) demerits of the Budget approach adopted in the preparation of the 2019 Budget. (3 marks)

Answer

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Tags: Budget Preparation, Fiscal Year 2019, Incremental Budgeting, Public Sector
Level: Level 2

Topic: Public sector fiscal planning and budgeting
Series: NOV 2018

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

Question

a) Explain the following:
i) Incremental Budgeting (2 marks)
ii) Zero-Based Budgeting (2 marks)
iii) Activity-Based Budgeting (2 marks)

	Budget	Actual
Production/sales (units)	2,000	1,400
Sales (GH¢)	60,000	42,400
Variable Costs:
Direct material (GH¢)	(20,000)	(13,200)
Direct labour (GH¢)	(10,000)	(7,600)
Variable overhead (GH¢)	(6,000)	(4,400)
Contribution (GH¢)	24,000	17,200
Fixed cost (GH¢)	(20,000)	(20,800)
Net profit/loss (GH¢)	4,000	(3,600)

Required:
Prepare a budget that will be useful for management cost control purposes and briefly comment on the company’s performance in December 2022. (14 marks)

Answer

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Tags: Activity Based Budgeting, Cost Control, Flexible Budget, Incremental Budgeting, Zero-Based Budgeting
Level: Level 1

Topic: Budgeting, Marginal Costing and Absorption Costing
Series: JULY 2023

Question Tag: Incremental Budgeting

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PM – May 2021 – L2 – Q4 – Budgeting and Budgetary Control

Develop a redrafted budget based on probability-based revenue and assess incremental versus zero-based budgeting.

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PSA&F – Nov 2019 – L2 – Q2a – The Budgeting Process in the Public Sector

Comparison of incremental and zero-based budgeting and explanation of zero-based budget stages.

You're reporting an error for "PSA&F – Nov 2019 – L2 – Q2a – The Budgeting Process in the Public Sector"

MI – May 2016 – L1 – SA – Q12 – Budgeting

Identify the term used for the intentional overestimation of expenses or underestimation of revenue in a budget.

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MA – Aug 2022 – L2 – Q3b – Budgetary control

This question focuses on explaining how a rolling budget works and calculating a revised budget for Baya Ltd.

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MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

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MA – May 2017 – L2 – Q2c – Budgetary control

Identify and explain three steps in the preparation of a Zero-Based Budget.

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PSAF – Nov 2018 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a budget for 2019 using 2018 as a base and analyze the budgeting approach.

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IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

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PM – May 2021 – L2 – Q4 – Budgeting and Budgetary Control

Develop a redrafted budget based on probability-based revenue and assess incremental versus zero-based budgeting.

You're reporting an error for "PM – May 2021 – L2 – Q4 – Budgeting and Budgetary Control"

PSA&F – Nov 2019 – L2 – Q2a – The Budgeting Process in the Public Sector

Comparison of incremental and zero-based budgeting and explanation of zero-based budget stages.

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MI – May 2016 – L1 – SA – Q12 – Budgeting

Identify the term used for the intentional overestimation of expenses or underestimation of revenue in a budget.

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MA – Aug 2022 – L2 – Q3b – Budgetary control

This question focuses on explaining how a rolling budget works and calculating a revised budget for Baya Ltd.

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MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

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MA – May 2017 – L2 – Q2c – Budgetary control

Identify and explain three steps in the preparation of a Zero-Based Budget.

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PSAF – Nov 2018 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a budget for 2019 using 2018 as a base and analyze the budgeting approach.

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IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

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