In historical trend budgeting, how is the coming year's budget typically determined?

In historical trend budgeting, how is the coming year's budget typically determined?

• A. It uses the same amounts as the current year with no changes
• B. It increases each line item based on past trends and expected changes
• C. It eliminates all line items not essential
• D. It reduces all line items by 5%

Answer: (B)

Historical trend budgeting builds the next year’s numbers from what actually happened before. It analyzes how each expense category changed over past years and then applies those patterns to the coming year, while also factoring in expected changes like inflation, contract renewals, or planned program changes. This approach aims to reflect realistic cost drivers rather than simply copying the current year, removing items arbitrarily, or applying uniform cuts. So, adjusting each line item based on past trends and anticipated changes best captures how expenses are likely to evolve.

Historical trend budgeting builds the next year’s numbers from what actually happened before. It analyzes how each expense category changed over past years and then applies those patterns to the coming year, while also factoring in expected changes like inflation, contract renewals, or planned program changes. This approach aims to reflect realistic cost drivers rather than simply copying the current year, removing items arbitrarily, or applying uniform cuts. So, adjusting each line item based on past trends and anticipated changes best captures how expenses are likely to evolve.