CIMAPRO19-P01-1 Exam - Topic 7 Question 9 Discussion

Question

'Public sector organizations are often judged by their economy, efficiency and effectiveness. Consequently, they should use an approach to budgeting other than incremental budgeting.'

Required:

Explain ONE advantage and TWO disadvantages of public sector organizations using incremental budgeting.

Select all true statements.

Glenna · Accepted Answer

B) Public sector organizations tend to be fairly complex and in many cases outputs cannot be measured in monetary terms therefore the link between inputs and outputs is difficult to establish. An incremental approach can therefore provide a cost effective approach to budgeting. and C) Under an incremental approach to budgeting, existing operations and the current budgeted allowance for these existing activities are taken as the base level for preparing the budget. and E) The incremental approach means that budget holders in public sector organizations will be encouraged to use up this year's budget will be as high as possible.

Glenna · Answer

A) An incremental; approach is not as easy and fast to implement than other forms of budgeting approaches e.g. zero based budgeting.

Glenna · Answer

D) The main advantage of incremental budgeting is that the cost of past activities becomes fixed and any inefficiencies or wastage is perpetuated.

Glenna · Answer

F) The incremental approach encourages managers in public sector organizations to look at the efficiency and effectiveness of activities undertaken.