ACCA Applied Knowledge · Management Accounting · Budget preparation
A company uses a rolling budget with quarterly updates. The annual budget for Year 1 was prepared in December. At the end of Quarter 1, the budget is updated. Which statement is correct?
The budget is extended by one new quarter so four quarters ahead are always covered. A rolling budget is continually updated as each period ends, keeping a constant planning horizon, rather than being fixed or rebuilt from zero.
- AThe budget is extended so that four quarters ahead are always coveredCorrect
- BThe budget is rewritten from zero each quarter
- CThe budget is fixed and never revised during the year
- DThe budget is flexed to actual activity only
Explanation
A rolling budget is continuously updated: as each quarter expires, a new quarter is added so a full twelve-month horizon always exists. Zero-based rewriting and fixed budgets are different approaches, and flexing to actual activity is a different technique.
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