Which of the following is the dominant approach for budgeting used today?

• A. Incremental budgeting
• B. Zero-based budgeting
• C. Activity-based budgeting
• D. Flexible budgeting

Answer: (A)

Verified step by step guidance

1. Understand the concept of budgeting: Budgeting is the process of creating a financial plan for an organization, outlining expected revenues and expenditures over a specific period.
2. Learn about the dominant approach for budgeting: Incremental budgeting is widely used today. It involves using the previous period's budget as a base and making adjustments for the new period, such as adding or subtracting amounts based on expected changes.
3. Compare incremental budgeting with other approaches: Zero-based budgeting requires starting from scratch and justifying all expenses, activity-based budgeting focuses on activities driving costs, and flexible budgeting adjusts budgets based on actual activity levels.
4. Recognize the advantages of incremental budgeting: It is simple, time-efficient, and provides stability by building on past budgets, making it the dominant approach in practice.
5. Understand the limitations of incremental budgeting: While dominant, it may overlook inefficiencies or fail to adapt to significant changes, which is why other approaches like zero-based or activity-based budgeting are sometimes used in specific scenarios.