A Software-as-a-Service (SaaS) company operates in a highly volatile market and uses rolling budgets. Which of the following is the primary advantage of using a rolling budget in this environment?

Answer options:

It reduces the administrative time and cost of the budgeting process.

It ensures that the budget remains relevant and up-to-date by continuously extending the planning horizon.

It forces managers to justify every cost from scratch each period.

It automatically adjusts budgeted allowances based on actual production volumes.

How to approach this question

Recall the definition of a rolling budget: a budget kept continuously up to date by adding another accounting period when the earliest period has expired.

Full Answer

B.It ensures that the budget remains relevant and up-to-date by continuously extending the planning horizon.✓ Correct

A rolling budget is continuously updated by adding a new period (e.g., a month or quarter) as the current one expires. This ensures the planning horizon is always a full year (or other chosen duration) ahead, making it highly relevant in volatile markets. However, it is administratively demanding.

Common mistakes

Confusing rolling budgets with flexible budgets or zero-based budgeting.

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