Four months into the new budget it is learned that there will be a major increase in the cost of raw materials. The most appropriate action is to:
A) leave the master budget intact.
B) revise the master budget to incorporate the cost increase in raw materials.
C) hold the purchasing department responsible for not anticipating the cost increase.
D) no action is necessary.

Question

Quizplus · Accepted Answer

It is important to revise the master budget to incorporate any significant changes in cost. Ignoring the cost increase in raw materials could result in an inaccurate budget and potentially harm the financial health of the company. Holding the purchasing department responsible is not productive since they could not have foreseen the unexpected cost increase. No action is not the appropriate response since the budget needs to be adjusted accordingly.

Four Months into the New Budget It Is Learned That