Management Accounting Atiq ur Rahman Mardan Institute of Management Studies Lecture 3 Budgets • Incremental Budgets Traditional Budget Approach. Basing Next Year’s Budget on: the Current Year Results + an Extra Amount (Increment) Estimated growth or inflation is considered. Incremental Budgets Slack is the Managers try to use Slack isdifference between created all the budget even if And theis no need, so there minimum Waste of Money costs and necessary year’s that next the budget is not cut costs built into the budget. Zero Based Budgets Budget is prepared for each cost centre from scratch. Every process or expenditure has to be justified. Activity Based Budgets ABB involves defining the activities that underlie the financial figures in each function and using the level of activity to decide how much resources should be allocated, how well it is being managed and to explain variances from budget. Activity Based Budgets It is activities which drive costs and the aim is to control the causes (drivers) of costs rather than the costs itself. Not all activities are value adding and so activities must be examined and split up according to their ability to add value. Most departmental activities are driven by demand and are beyond the immediate control of managers responsible. ABB focuses on drivers cost, quality of activities and responsiveness to change~ leads to continuous improvement Consider advantages and disadvantages of both ………Today’s session will be concluded after discussions on the budgets…..