Budgets (5) Flashcards
What is a rolling budget?
A budget that is continuously updated by adding a further accounting period when earliest accounting period has finished
When are rolling budgets particularly useful?
When organisation is facing a period of uncertainty
What do rolling budgets attempt to resolve?
Prepare targets and plans that are more realistic and certain, particularly with regard to price levels
How are roling budgets prepared?
Every 1, 2 or 3 months, with each budget plan for the enxt 12 months
How are cash budgets usually prepared?
On a rolling basis
Advantage of rolling budgets (uncertainty)
Uncertainty is reduced. Rolling budgets focus detailed planning and control on short-term prospects where degree of uncertainty is much smaller
Advantage of rolling budgets (reassess budget)
Managers have to regularly reassess the budget, means they should be more realistic
Advantage of rolling budgets (Planning and control)
Planning and control will be based on a more recent plan
Advantage of rolling budgets (Continuous)
Budget is continuous and will always extend a number of months ahead, encouraging managers to thank about the future
Advantage of rolling budgets (Realstic)
Takes account of recent performance and market conditions and likely to have motivational influence on managers
Disadvantage of rolling budgets (Effort)
Effort and expense are required to continuously update the budget
Disadvantage of rolling budgets (Demotivate)
May demotivate managers if they cannot see benefit of regular revisions
Disadvantage of rolling budgets (Revision of standards)
Each revised budget may require revision of standards or inventory valuations, creating additional pressure on accounts department
What is activity based budgeting/
Uses costs detetmined using ABC as a basis for prearing budgets
What does implementing ABC lead to/
Realisation that business as a whole needs to be managed with far more reference to behaviour of activities and cost drivers identified
