The managing director of your company believes that the existing annual budget system is costly to operate and produces unsatisfactory results due to: long preparation period; business decisions being made throughout the year; unpredictable changes in the rate of general inflation; sudden changes in the availability and price of raw materials. He has read about rolling budgets and wonders whether these might be more useful for his decision-making. You are required, as the management accountant, to prepare a paper for him covering the following areas.
(a) A brief explanation of rolling budgets;
(b) How a rolling budget system would operate;
(c) Three significant advantages of a rolling budget system;
(d) Three problems likely to be encountered in using a rolling budget system.