ICAEW BIP · Chapter 6 · Question 5 of 11
A company prepares a 12-month budget and, at the end of each quarter, adds a further quarter so that a 12-month budget always exists. What is this approach called and what is its main advantage?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A rolling budget; it keeps the budget relevant and realistic as circumstances change
Explanation
A rolling (continuous) budget is regularly extended by a further period as each period ends, so it always covers the same length of time ahead and reflects up-to-date conditions. It is useful in fast-changing environments. Its main drawback is that it needs more management time and effort, not less.
More Budgeting: purposes and approaches MCQs
- Q7Activity-based budgeting (ABB) differs from traditional budgeting mainly because it:
- Q8What is a fixed budget?
- Q9Which document sets out the instructions, procedures, timetable and responsibilities for preparing the budget?
- Q10A manager compares forecast results for the rest of the year with the budget and takes action now to correct an expected shortfall before…
- Q11In which situation is an imposed (top-down) budget most likely to be appropriate?