theres a qtn in kaplan where they switch from fixed budetig approach to rolling budgeting.
this is the answer in kaplan for the probelms encountered in fixed budgetin:The use of fixed budgeting has caused serious problems at Static Co. The fact they were using inaccurate sales forecast figures led them to invest in a production line which was not actually needed, even though they knew they were inaccurate. This unnecessary investment cost them $6m and caused the return on investment to halve. Had rolling budgets been used at the time, and used properly, the sales forecasts for the remaining quarters would have been adjusted to reflect a fall in demand and the investment would not have been made. Presumably, inaccurate sales forecasts would have led the business to get their staffing levels and materials purchases wrong as well. This too will have cost the business money. They were forced to heavily discount their goods in order to try to reach their targets at the end of the year, which was simply unrealistic. It can often be difficult to put prices back up again once they have been discounted. However, the actual results from the first quarter suggest that prices have increased again, which is fortunate
i have written this answer:
1)in fixed budgeting , they had to go adjust the previous budget target to make it look it was reached which is covered by the rolling budget as when the current budget was not reached it could be amended for the upcoming period to make it more attainable.
2)as the fixed budget doesn’t change 6m was invested based on outdated forecasts. rolling best helps in this situation as the current budget wouldve been updated as per the current demand levels and might not have been invested.
3)the og bugets which do not reflect the current situations would lead to staff demorale as in case rolling budget wipes out this problems as it reflects realistic changes
my doubt is some of my points are not exactly same as the std answer key , but in PM for these theory qualitative qtns , will writing different answers gain marks?