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

Sundaram Textiles Ltd. prepares its budget for the next twelve months. At the end of every month, the budget for the month just completed is dropped and a new budget for the same month of the following year is added, so that the firm always has a twelve-month budget in hand. Which type of budget is the firm using?

The firm is using a rolling or continuous budget. It drops the month just completed and adds the same month of the next year, so a twelve-month forward budget is always available. Zero-base, master and performance budgets do not work by continuously extending the budget period.

  1. AZero-base budget
  2. BRolling (continuous) budgetCorrect
  3. CMaster budget
  4. DPerformance budget

Explanation

A rolling or continuous budget is revised regularly by adding a new period as the current period expires, so a constant forward horizon is kept. A zero-base budget justifies every activity from scratch each period. A master budget is the consolidated summary of functional budgets, and a performance budget links costs to responsibility and output.

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