Budgeting Basics and Beyond

2.16. Budget Revision

A budget should be revised when it no longer acts as a useful planning and control device. Budgets should be revised when a major change in processes or operations occur, or when there are significant changes in salary rates. For example, additional competitors may enter the market with a product that sells at a lower price and is a good substitute for the company's product. This competition may make meeting the budgeted market share and sales unlikely. If management recognizes that even with increased promotional expenditures, budgeted sales are not realistic, all budgets affected should be revised. These revisions are preferable to using unattainable budgets. Budgets that are repeatedly revised are more informative as a control measure. For a one-year budget, budget estimates may be revised quarterly. Budget revisions should be more frequent in unstable businesses.