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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

A company prepares its budget by dividing the annual plan into a fresh twelve-month budget each month, so that at the end of every month the budget is extended by one more month to keep a constant twelve-month horizon. Which type of budget is this?

This is a rolling (continuous) budget, because each month the elapsed month is dropped and a new month is added so the twelve-month horizon always stays constant. Zero base, flexible and master budgets do not work in this way.

  1. ARolling (continuous) budgetCorrect
  2. BZero base budget
  3. CFlexible budget
  4. DMaster budget

Explanation

A rolling or continuous budget is updated regularly by adding a new period as the period just ended is dropped, keeping the horizon constant. A zero base budget justifies every activity from scratch, a flexible budget changes with activity level, and a master budget is the consolidated summary budget.

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