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

A manufacturer prepares a 12-month budget. At the end of every month, the month just completed is dropped and a new month is added at the end, so the budget always covers the next 12 months. Which type of budget is this?

This is a rolling (continuous) budget. It is revised regularly by dropping the completed month and adding a new month at the end, so the business always has a budget covering the next twelve months, unlike zero-based, fixed or performance budgets.

  1. ARolling (continuous) budgetCorrect
  2. BZero-based budget
  3. CFixed budget
  4. DPerformance budget

Explanation

A budget that is updated regularly by adding a future period as the current period expires, so that a constant forward horizon is maintained, is a rolling or continuous budget. A zero-based budget justifies every activity from scratch, a fixed budget is not revised for activity changes, and a performance budget links costs to outputs of responsibility centres.

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