Pros And Disadvantages Of A Rolling Budget

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1. Describe the company that you currently work for, have previously worked for, or would like to work for in the future. Determine at least two (2) compelling reasons that this company should prepare and manage a budget. Predict the two (2) most likely positive and negative financial outcomes for this company if it properly or improperly performs effective budgeting.
Profitability review. It is easy to lose sight of where a company is making most of its money, during the scramble of day-to-day management. A properly structured budget points out what aspects of the business produce money and which ones use it, which forces management to consider whether it should drop some parts of the business, or expand in others.
Cash allocation. There is …show more content…

In addition, if a company uses participative budgeting to create its budgets on a rolling basis, the total employee time used over the course of a year is substantial. Consequently, it is best to adopt a leaner approach to a rolling budget, with fewer people involved in the process.
Advantages and Disadvantages of the Rolling Budget
This approach has the advantage of having someone constantly attend to the budget model and revise budget assumptions for the last incremental period of the budget. The downside of this approach is that it may not yield a budget that is more achievable than the traditional static budget, since the budget periods prior to the incremental month just added are not revised.

A flexible budget includes formulas that adjust expenses based on changes in actual revenue or other activities. The result is a budget that is fairly closely aligned with actual results. This approach varies from the more common static budget, which contains nothing but fixed expense amounts that do not vary with actual revenue levels. Advantages of Flexible …show more content…

Several issues are:
◾Many costs are not fully variable, instead having a fixed cost component that must be derived and then included in the flex budget formula.
◾A great deal of time can be spent developing step costs, which is more time than the typical accounting staff has available, especially when in the midst of creating the more traditional static budget. Consequently, the flex budget tends to include only a small number of step costs, as well as variable costs whose fixed cost components are not fully recognized.
◾The flexible budget model usually only works within a relatively limited revenue range; the budget analyst is unlikely to spend the time developing a more wide-ranging model if it is considered unlikely that outlier revenue amounts will be encountered.
TEXTBOOK CHAPTER 22 http://www.accountingtools.com 4. Imagine that the company is facing a financial challenge that is causing the actual amounts of money that it spends to become significantly off target from its budgeted amounts. Prepare an action plan to resolve the budget misalignment. In your action plan, recommend at least one (1) budgeting technique to resolve the budget and actual discrepancies. Provide a rationale for your

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