An incremental budget is prepared using a previous period's budget or actual performance as a basis, with incremental amounts added for the new budget period. It often fails to account for changed operating conditions.
A zero-base budget (ZBB) is a cash-flow budget where the manager responsible must prepare and justify all expenditures from a zero base, assuming no prior spending commitments. This method compels a thorough review of each cost element, contrasting sharply with the incremental budget, which adjusts previous budgets.
