Describe the difference between a line item budget and a performance budget

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Expert Solution

A performance budget almost always has numerical targets or goals attached to it. It seeks to measure/quantify the output achieved for the inputs used. Such budgets are mostly used by government bodies, public sector entities whose primary aim is social welfare & not-for-profit organizations. These budgets essentially try to measure benefits achieved vis-a-vis the resources used.

For example, rate of reduction in crime rate vs. increase in law enforcement personnel or reduction in mortality rate vs. increase in government healthcare spend.

A line item budget on the other hand, budgets or forecasts expenses department/cost centre/line of business wise. Such budgets are helpful in understanding which functions in a business incur the maximum costs & the specific areas that contribute to those costs.

For example, are the costs incurred by the procurement or manufacturing or human resources or finance function the highest?

jeff jeffy answered 9 months ago

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