Section A

TrendSet, a fast-fashion e-commerce retailer, operates in a highly volatile market where consumer tastes change monthly. They currently use a fixed annual budget but are considering switching to a rolling budget.

Which of the following is the primary advantage of a rolling budget for TrendSet?

Answer options:

It reduces the administrative time and cost associated with the budgeting process.

It ensures that planning is always looking forward for a full 12-month period, incorporating the latest market trends.

It forces managers to justify every cost from scratch, eliminating historical inefficiencies.

It automatically adjusts budget allowances based on the actual volume of sales achieved.

How to approach this question

Identify the definition and primary benefit of a rolling budget, which involves continuously adding a new period as the current one ends.

Full Answer

B.It ensures that planning is always looking forward for a full 12-month period, incorporating the latest market trends.✓ Correct

A rolling budget is kept continuously up to date by adding another accounting period (e.g., a month or quarter) when the earliest accounting period has expired. Its primary advantage in volatile industries like fast fashion is that it forces management to constantly look ahead and adapt to recent changes, maintaining a realistic 12-month forecast.

Common mistakes

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

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