Official Solution: A bakery estimates its predicted yearly expenditures on ingredients when allocating its annual food budget by adding a correction factor of five percent to its costs from the previous year. This method allows the bakery to quickly and simply account for annual increases in the cost of raw ingredients.

Which of the following, if true, would most call into question the economic soundness of the bakery's method for estimating its food budget?

A. The bakery might repeatedly account for the use of a costly ingredient that it no longer uses.

B. Increases in the cost of raw materials have not varied considerably in the past decade.

C. This method of budgeting might discourage the bakery from developing new and innovative recipes.

D. The bakery might allocate too little money for its other operating expenses.

E. Some bakery executives do not believe this is the best practice.

For the sake of convenience, a bakery adjusts its food budget by simply adding five percent to its costs from the previous year. We are asked to find a flaw in this method.

Choice A points to a potential problem. Under this system of budgeting, costs are carried over from year to year. So, continuing to budget for ingredients which are no longer used could lead to inaccuracies in the budget.

Choice B tells us that some price increases have been relatively stable. If anything that suggests that this model might have some merit. We're looking for a choice that's critical of the plan, so we can eliminate this choice.

Choice C is outside of the scope of this argument. We want a choice that shows why this method is questionable for estimating costs. At best, C points to a possible negative effect of the method on product development, but not one affecting the food budget.

Choice D is incorrect because it doesn't give a reason why this specific method of estimating food costs would be unsound. Operating expenses have nothing to do with expenditures on ingredients.

Finally, the opinion of "some bakery executives" does not prove that the policy is economically unsound.

Answer: A

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