Rolling Budgets

Question 1

What are rolling budgets?

Answer 1

A budget continuously updated by adding a further account period (month or quarter) when the earliest accounting period has expired.

Question 2

Advantages of rolling budgets

Answer 2

• Uncertainty is reduced. Rolling budgets focus detailed planning and control on short-term prospects where the degree of uncertainty is much smaller, especially in terms of change.
• Managers have to regularly reassess the budget, which means they should be more realistic.
  *Planning and control will be based on a more recent plan.
  *A realistic budget that takes account of recent performance and market conditions is likely to have a better motivational influence on managers.

Question 3

Disadvantages of rolling budgets

Answer 3

*Effort an expense are required to continuously update the budget.
*May demotivate managers if they cannot see the benefit of regular revisions.
*Each revised budget may require revision of standards or inventory valuations, which could put additional pressure on the accounts department each time a rolling budget is prepared.