Question

what is a example of incremental budgeting, zero-based budgeting and modified zero-based budgeting

Answer 1

1) Incremental budgeting :- an incremental budgeting is a budget prepared using a previous period budget or actual performance as a basis with incremental amounts added for the new budget period .

For example :- in an organization total salaries paid to emoployee in a particular year is $800'000 . When it is prepared for the next year the management thing that they need 5 more new employees who will be paid $40000 each.and also an increments of 10% to existing employees shall be given. Therefore,the budget for salary would be $860,000 ($600,000 + 10% raise to existing employee) + ($40,000*5 new employee)

2) Zero-based budgeting :- is a method of budgeting in which all expenses must be justified for each new period. The process of zero based budgeting starts from a "zero-base".

For example :- let's say last year , you purchase same products from another company for $30000. You decide to use zero based budgeting for upcoming year. Then after listings expenses you realize you can make your own product and save $22000. When creating zero based budgeting you would only mark $8000 ( $30000 - $22000)

You also realize you can cut on advertising, instead of spending $10000 , only need to spend $3000. You find out you can get a better rate from different suppliers , saving $500. Instead of $1500 , or suppliers will now only cost you $1000.

Income	($)	($)
Products sale	40000
Service sale	190000
Total income		230,000
Expenses
Products	8000
Employees wages	50000
Rent and utilities	27500
Advertisement	3000
Office supplies	1000
Insurance	2000
Total expenses		91500
Net profit		138,500

3) Modified zero based budgeting :- in financial market modified zero based budgeting can help companies enhance their budgeting process and make good financial decision with lower cost and less effort than zero base budgeting can.