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ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting

Kestrel Ltd uses a rolling budget. It prepares a 12-month budget and, at the end of each quarter, drops the quarter just completed and adds a new quarter, updating the figures. Which is the main advantage of this approach?

The main advantage is that the budget stays current and always covers a full twelve months ahead. Regular updating lets management reflect recent conditions. It does not remove forecasting, ensure acceptance by managers or reduce the frequency of preparation.

  1. AIt removes the need to forecast future activity
  2. BIt keeps the budget up to date and always looks a full year aheadCorrect
  3. CIt guarantees that managers will accept the targets set
  4. DIt means that budgets need to be prepared only once every year

Explanation

A rolling budget is updated regularly so that planning always covers a constant future period, reflecting latest conditions. It still requires forecasting, does not guarantee acceptance, and involves more frequent, not less frequent, preparation.

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