b) Discuss the problems which have occurred at static co due to previous budgeting process and

improvements which now be seen through the use of realistic rolling budgets.

= PROBLEMS of fixed annual budget

Static co adopts fixed annual budget where it sets quarterly sales target.SD and FD have been changing
the initial targets to meet their target and increased final quarter targets.

To meet the increased target in final quarter,manager had to give discount .with the heavy discount
static co looses ssome of its revenue in the form of discount. At the time of bringing back the original
price there might be chance of customer moving away.

With the target set at beginning $6m of expenditure is invested in a new production line which hasnot
been used till date creating unnecessary investment without any gain for static co.

These factors led to decreased ROI of 8%(16-8%) leding to decreased financial performance.

IMPROVEMENTS using Rolling budget

Th use of rolling budget mean that budget is adjusted for in future quarters using after end actual data
rather than sales simply being pushed into last quarter which is not realistic adjustment. Management is
forced to update the budget regularly and produce upto date information.this means that accurate
management decisions can that be made and mistakes like investing which is not needed should not
happen again and prevent unnecessary cash outflow.

c) Discuss the problems which may be encounters when static co tries to implement the new budgeting
system.

= the first problem may be trying to obtain the right information needed to update the budget .the FD
has been dismissed and other two other key staff are off work due to stress.this could be very difficult to
obtain information if the department is understaffed nd lacking the direction given by FD .staff in the
finance department may not have skills to update the budget. Similarly the sales department is without
a SD and thy would usually hav a played a key part in reviewing figures for sales forecast hence it may be
difficult to obtain reliable sales data.

For preparing rolling budgets staff will need training as they are used only for preparing fixed
budgets .staffs are not familiar with process of updating all of financial information again .this process
takes time and staff may feel bored doing again and again .

The new MD is new to thiss industry and therefore lack experience of how it works whilist they are
confident that assumptions of original fixed budget still stand true ,they are not in good position to
know. The assumptions may be wrong and if they are ,the new rolling budget will be unreliable.