Compare and contrast zero-based versus incremental budgeting? Zero-based budgets (ZBB) start with just that, zeroed out or a clean slate. In this type of budget, each and every item needs to be justified. There is no reference point, so you are trying to achieve an ideal allocation of funds and resources to where they will be most beneficial and are most needed. A benefit of ZBB is that all of the organization's activities are evaluated annually, with a zero-reference point, challenges and encourages questions amongst managers, responds to changes in the business environment from year to year, and should more efficiently allocate resources and funds. Some draw backs of ZBB are larger organizations may have unmanageable paperwork due to a large amount of activities, ranking allocation can be difficult in the sense that there might not be enough time/knowledge to properly decide, and identifying and determining packages can be costly (time and monetarily). This is compared to incremental/conventional budgeting which uses the previous budget as the starting point (Reiter & Song, 2021). A benefit of incremental budgeting is that you include adjustments for planned increase in sales, costs, and inflation. Other benefits of incremental budgeting are that it is relatively easy to understand, involved less preparation time and costs, avoids departmental conflicts, and change impacts can be quickly identified. Some negatives of it are that you are assuming all the current costs and activities are still needed without a detailed examination, costs do not need to be justified, no incentives for departments to try to reduce costs, and usually there are unchallenging performance targets (ACCA, n.d.). Zero-based is probably more suitable for public/nonprofit companies rather than private/for-profit. Having to justify every cost can be extremely time consuming so for a larger company, it might not be the best decision for budgeting

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Zerobased budgeting and incremental budgeting are two different approaches to budgeting that have th... View the full answer