Over the years, budgeting techniques have taken different forms in order to improve the efficiency of planning and executing the operations. Different approaches are developed for different companies, depending on the nature and variety of their operations. If the operations are suggested to incur cumulatively over the years, “incremental budgeting” is preferable; whereas “zero-based budgets” may be better for planning each year separate than the preceding one.

As also understood from the information given, if the operations are suggested to incur cumulatively over the years, “incremental budgeting” is preferable, so the correct answer is A.

The information about the budgeting techniques taking place in the options:

Incremental budgeting technique does not require complex calculations or assumptions and can be achieved for various departments easily. Additionally, as the current year’s budget is the basis for it, no large deviations incur in the following year’s assessments, providing the companies a more stable budget year-by-year. Another benefit of using this budget is that the value of equality is created among all departments as all departments are given a small amount of improvement in their targets. However, at this point, this budgeting technique may have some shortcomings as managers may determine lower targets, within which high spending or low revenue generation ability is tolerated. Departments do not need to be innovative or to decrease the costs as far as the budgets are met with the current level of efficiency.

As opposed to traditional budgeting that starts with the current budget, zero-based budgeting requires managers to prepare the budget with zero-base, meaning that all items to be included in the following year’s budget should be analyzed and determined by considering only the next year’s operations. No item can be added to the budget unless the managers justify its need and usefulness for the company.

With the fact that preparing the budget on a departmental basis does not provide accurate information on drivers of success on a company, many companies apply Activity-Based Budgeting (ABB) technique. By applying this technique, the budgeting process is saved from the chart of accounts structure (such as depreciation, marketing, salaries, etc.).

With the kaizen budgets, expectations on continuous improvement are incorporated with the budgeting process. The required amounts of resources are adjusted every time according to the desired levels of efficiency and productivity. Kaizen budgeting approach is much more effective when combined with activity-based budgeting technique.

With the fact that preparing the budget on a departmental basis does not provide accurate information on drivers of success on a company, many companies apply Activity-Based Budgeting (ABB) technique. By applying this technique, the budgeting process is saved from the chart of accounts structure (such as depreciation, marketing, salaries, etc.).

Managers use production budgets to prepare plans for gathering the necessary resources for the budgeted production. One of those necessary resources is direct materials. Plans regarding the direct materials are prepared with the help of two budgets, which are;

1. Direct materials usage budget, and
2. Direct materials purchase budget.