In budgeting for a new ambulance, which method compares the added cost to the expected benefits?

In budgeting for a new ambulance, which method compares the added cost to the expected benefits?

• A. Performance budgeting
• B. Incremental cost analysis
• C. Zero-based budgeting
• D. Fixed budget method

Answer: (B)

When evaluating a new ambulance, the focus is on the changes that come with adding the asset: the additional cost of purchase, deployment, and ongoing operation, and the extra benefits it brings, such as faster response times, broader coverage, more calls handled, and potential lives saved. This marginal approach helps determine whether the added benefits justify the extra expense. If the added value outweighs the incremental costs, the investment makes sense; if not, it may be prudent to reconsider or adjust. This differs from performance budgeting, which links funding to outcomes but doesn’t require weighing marginal costs against marginal benefits. Zero-based budgeting starts from a blank slate each period and requires justification for every expense, not specifically focusing on the incremental cost–benefit balance. The fixed budget method sticks to a set amount regardless of the specific benefits a new asset would deliver.

When evaluating a new ambulance, the focus is on the changes that come with adding the asset: the additional cost of purchase, deployment, and ongoing operation, and the extra benefits it brings, such as faster response times, broader coverage, more calls handled, and potential lives saved. This marginal approach helps determine whether the added benefits justify the extra expense. If the added value outweighs the incremental costs, the investment makes sense; if not, it may be prudent to reconsider or adjust.

This differs from performance budgeting, which links funding to outcomes but doesn’t require weighing marginal costs against marginal benefits. Zero-based budgeting starts from a blank slate each period and requires justification for every expense, not specifically focusing on the incremental cost–benefit balance. The fixed budget method sticks to a set amount regardless of the specific benefits a new asset would deliver.