31. Comparing Flexible, Rolling, Activity-Based, Zero-Based, and Project Budgeting Flashcards
What is a continuous rolling budget?
A continuous rolling budget is used to establish and maintain a constant number of operating periods moving forward in the master budget. For example, six months of weekly budgets, followed by a half year of monthly budgets, followed by a year of quarterly budgets, and an annual budget in the third year. As each month of operations concludes, the budget rolls forward.
What are the benefits of a continuous rolling budget?
- Breaks the budget process down into more manageable monthly processes rather than a lengthy annual process
- Forces managers to plan forward several years, making them more strategic in their work and decision making
- Improves the relevancy of data and perspective used in the master budget as each month incorporates past learning
What are flexible budgets?
Flexible budgets are used to examine possible future scenarios in sales volume. They are crucial for computing variances to evaluate past operating results based on relevant budget costs. Flexible budgets use a contribution margin statement approach, separating variable costs and fixed costs, which is helpful to organizations working to control cost and evaluate cost performance.
What is activity-based budgeting?
Activity-based budgeting focuses on identifying and using core activities throughout the organization to establish activity cost rates to assign costs to products, customers, and other business targets based on actual consumption relationships.
What is zero-based budgeting?
Zero-based budgeting demands that all budgeting choices are taken back to a “blank page” to be fully evaluated and, if approved, put into the master budget plan. Nothing is assumed to carry forward from previous years to the next year’s budget. Projects are prioritized and allocated resources based on their alignment with the organization’s strategy.
