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Budgeting (New developments in management accounting (Focus on horizontal…
Budgeting
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Budgeting process
Priority-based budgets: allocate funds in line with strategy. If priorities change in line with the organisation’s strategic focus then budget allocations follow those priorities, irrespective of the historical allocation.
Zero-based budgeting: identifies the costs that are necessary to implement agreed strategies and achieve goals, as if the budget-holder were beginning with a new organisational unit, without any prior history. This method has the advantage of regularly reviewing all the activities that are carried out to see if they are still required, but has the disadvantage of the cost and time needed for such reviews.
Incremental budgets: take previous year’s budget as a base and add (or subtract) a percentage to give this year’s budget. Assumption that the historical budget allocation reflected organisational priorities and was rooted in some meaningful justification developed in the past
Activity-based budgeting: associated with activity-based costing. Identifies activities that consume resources and uses concept of cost drivers to allocate costs to products or services according to how much of the resources of the firm they consume.
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