Wendy Jones, CFO of Trent Industries, told the executive management team in their annual budget planning kick-off meeting, "In years past, we have used previous years' budgets as a starting point in developing our next year's budget. This is an example of the _________ model of decision-making. As a result, we have not rooted out unnecessary costs, and we have allowed unnecessary costs to be 'baked in' to our budgets. Our long-term profitability is therefore eroding. To force us to make tough decisions on cost-cutting for next year's budget, we will build up our budgets 'from the bottom,' using a zero-based budgeting approach. I expect you to closely examine each individual cost item and be prepared to defend it."

Question

Quizplus · Accepted Answer

The use of previous years' budgets as a starting point in developing the next year's budget is an example of the incremental model of decision-making. This approach assumes that the past budget is a reasonable starting point and only minor adjustments need to be made. However, this approach can lead to unnecessary costs being baked into the budget over time, as mentioned by the CFO. The zero-based budgeting approach advocated by the CFO is a departure from the incremental model, as it requires each cost item to be justified from scratch.

Wendy Jones, CFO of Trent Industries, Told the Executive Management