Budgets are commonly created for yearly, semiannual, and quarterly periods. Some firms prepare budgets for all three periods; others prefer to operate on an annual basis, thereby reducing the amount of paperwork required.
The quarterly budget forces a reappraisal of the firm’s position from times a year, thereby decreasing the likelihood that operations will get out of control Many companies find a quarterly system advisable because that is roughly their operations conversion cycle.
Garment makers usually have four conversion cycles per year. That is, they put out four different lines of goods, one for each season, and find it convenient to budget for each selling season. The main advantage of a short planning period is that it is more likely to be accurate. The shorter the forecasting period, the less likelihood there is that the estimate will be disturbed by unforeseen developments. In deciding which period to use, a firm must balance the degree of control with the costs of compiling the budgets.
