Partial budgeting includes which components?

• A. Fixed costs
• B. Additional returns, forgone returns, additional costs incurred, and costs no longer incurred
• C. Only fixed costs
• D. Only variable costs

Answer: (B)

Partial budgeting focuses on the changes that would occur if a proposed change is adopted, zeroing in on incremental financial effects. It includes four components: extra revenue generated by the change (additional returns), revenue you would have earned anyway but is forgone because of the change (forgone returns), new costs created by implementing the change (additional costs incurred), and cost savings from expenses you no longer incur as a result of the change (costs no longer incurred). The net impact is the sum of the additional returns and forgone returns minus the sum of the additional costs and costs saved. This captures the true financial consequence of the change rather than considering costs or revenues that don’t actually change. The other options focus on only fixed or only variable costs, which omits the crucial elements of forgone revenue and savings that partial budgeting explicitly includes.