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ACCA Strategic Professional · Strategic Business Leader · Cost and management accounting

Halden Pharma operates in a market where regulatory approvals and competitor launches change quickly, making a 12-month fixed budget out of date within a few months. The board wants the budget to always cover the next four quarters, with one quarter added as each quarter ends. Which approach does this describe, and what is its key benefit in this case?

This is a rolling budget. Each time a quarter ends, a new quarter is added so the company always plans four quarters ahead. Its benefit in a volatile market is that plans are regularly updated and remain relevant, unlike a fixed annual budget that quickly becomes outdated.

  1. ARolling budget, because it keeps planning aligned with a changing environment and keeps a constant forward horizonCorrect
  2. BFlexible budget, because it adjusts the budget for the actual level of activity achieved
  3. CZero-based budget, because it requires all activities to be justified each period
  4. DParticipative budget, because it gives managers ownership of targets

Explanation

Adding a new quarter as each one expires, so that four quarters are always planned, is a rolling (continuous) budget. It keeps forecasts current in a volatile environment. A flexible budget changes with activity volume, not with the passage of time, so it does not fit the description.

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