CMA Exam: Budgeting Methodologies Question 1

“All our dreams can come true – if we have the courage to pursue them.” – Walt Disney

The Question

A budgeting approach that requires a manager to justify the entire budget for each period is known as?

A) Flexible Budgeting
B) Performance Budgeting
C) Incremental Budgeting
D) Zero-based Budgeting

The Analysis

Budgets are normally developed by referring to the current actual for the period and adjusting them for the coming period. This method of budgeting is called Incremental Budgeting because we continue to increase the cost and revenue over time.

There’s also a different method of budgeting that start from a clean slate. This type of budget does not reference current actual but starts from zero. As you have probably guessed it, it is called Zero-based Budgeting.

In this type of budget, a manager is required to justify the entire budget. It is more time-consuming and costly to develop, but there are various advantages such as the elimination of non-value adding activities and the elimination of budgetary slack.

The Answer

A) Flexible Budgeting
B) Performance Budgeting
C) Incremental Budgeting
D) Zero-based Budgeting
The only type of budgeting method that requires a manager to justify an entire budget is Zero-based Budgeting 

Final Thoughts

I hope that the Q&A post series are helping you understand various CMA concepts. When I was studying, I always wished for a resource that would present the concepts in this format. For some reason I learn this way better as I see how the concept is being applied as I learn it.

If you have any questions or comments about this Q&A, feel free to post them using the comments section below. I will reply as soon as possible.

Thank you,
Nathan

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