Skip to content

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

Northfield Telecom operates in a volatile market where demand and technology change every few months. The annual budget is fixed in November, and by April it bears little relation to conditions, yet managers are still judged against it. The board wants a method that keeps planning relevant and forces regular reconsideration of assumptions. Which approach best fits?

Rolling budgets fit best. In a volatile environment a fixed annual budget quickly becomes irrelevant, whereas a rolling budget is updated regularly by adding a new period as one ends. This forces managers to reconsider assumptions and keeps targets and plans aligned with current market conditions.

  1. ARolling budgets, updated regularly by adding a new period as each period expiresCorrect
  2. BFixed annual budgets with stricter variance penalties
  3. CIncremental budgets with a higher inflation allowance
  4. DTop-down imposed budgets set by the board only

Explanation

Rolling budgets are continually extended and revised, so assumptions are reviewed often and the plan reflects current conditions. Stricter penalties on a fixed budget would worsen the problem of irrelevance, and incremental or imposed budgets do not address changing conditions.

Did you get it right without looking?

One question tells you little. A timed set on Cost and management accounting shows your real accuracy, how long you take and where you lose marks.

Practise Cost and management accountingFree diagnostic mock

More Cost and management accounting questions