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I have encountered an example in my BPP Text book about Rolling budget which I found some difficulties. The question is:
A company uses a system of rolling budgets. The sales budget is displayed below:
Jan-Mar Apr-June Jul- Sep Oct-Dec Total
Sales $78,480 $86,120 $91,800 $97,462 $353,862Actual sales for January-March were $74,640. The adverse variance is explained by growth being lower than anticipated and the market being competitive than predicted.
Senior management had proposed that the revised assumption for sales growth should be 2.5% per quarter.
Required
Update budget as appropriate.
Now, part of the text book solution was “The revised budget incorporated 2.5% growth starting from actual sales figure for January to March.”
My query is, if he knew what the actual sales were for Jan to March, why did the book applied the 2.5% for Jan to March from the budgeted figure, if he knew what the actual sales were?.
The books solution:
Apr- June = 76,506 x 1.025 = $78,419
and continues to add 2.5% until Jan-Mar of the following year.
Kindly explain why didnt he take the actual sales for Jan-Mar and added up 2.5% for Apr to June from $74,640.
Thank you in advance.
I do not have the BPP Study Text, but on the information you have written, the rolling budget should run from April to the following March.
For April to June, the should have taken the actual sales from Jan to March and increased by 2.5%. So April to June should be 74,640 x 1.025 = 76,506. July to September should be 76,506 x 1.025 = 76,419, and so on.
Ok, thought so 🙂 since I have typed all the question.
Thanks so much for all your help.
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