In which situation would contingency costs be vital for a business?

Contingency costs are essential for a business during unforeseen circumstances, such as bad weather. These costs are set aside to cover unexpected events that can disrupt regular operations or necessitate additional spending to mitigate negative impacts. For instance, if a business is affected by a natural disaster or extreme weather conditions, having contingency funds allows it to address emergencies, maintain operations, or recover quickly without severely affecting its financial stability. This financial cushion ensures that the business can respond promptly and effectively to unexpected challenges, demonstrating its resilience and ability to adapt under pressure.

In contrast, initiating new marketing campaigns, hiring additional staff, or managing routine operational costs typically involves more predictable expenditures, where careful planning and budgeting can accommodate expected costs without needing a specific set-aside for contingencies.