Advanced The managing director of your company believes that the existing annual budget system is costly to operate and produces unsatisfactory results due to: long preparation period;

business decisions being made throughout the year; unpredictable changes in the rate of general infla¬ tion;

sudden changes in the availability and price of raw materials.

He has read about rolling budgets and wonders whether these might be more useful for his de¬ cision-making.

You are required, as the management accountant, to prepare a paper for him covering the following areas.

(a) a brief explanation of rolling budgets;

(4 marks)

(b) how a rolling budget system would operate;

(4 marks)

(c) three significant advantages of a rolling budget system; (6 marks)

(d) three problems likely to be encountered in using a rolling budget system (6 marks)

CIMA P3 Management Accounting