Question

Why is it important to project the first year on a monthly basis and the subsequent yearly budgets, on a quarterly basis?

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Answer 1

Solution:

The projection of the data on a monthly basis allows accurate determination of the seasonal indices for a particular month and thus it allows in having an appropriate indication of the budget that will be required for the project. The ability of the small periods to determine the projections of the budgets accurately helps in maintaining the accuracy of the projection of budgets and allows for effective budget allocation. The subsequent projects are projected quarterly after analyzing the seasonal trends in budget allocation and hence are inclusive of the trends that are identified from the monthly projections, hence approximating on the quarterly projections. Thus the monthly projections of budget help in minimizing the overall error of the budget allocation and with minimized errors, one can determine the quarterly budget projections effectively.

Hence, the budgets are first projected on a monthly basis for the first year and then on the basis of quarters per year.