The managrng director of your company believes that the existing annual budget system is costly to operate and produces unsattsfactory results due to:

long preparation period, business decisions being made throughout the year;

unpredictable changes in the rate of general mflation;

sudden changes in the availability and price of raw materials.

He has read about rolling budgets and wonders whether these mtght be more useful for his decision-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;

(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