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ACCA Applied Knowledge · Management Accounting · Accounting for management

A company wishes to use a published industry index of raw material prices to forecast its costs. Which of the following is the most significant limitation of relying on this source?

The main limitation is that the index may not match the company's specific materials, time period or definitions. Secondary data is gathered for another purpose, so it may be unsuitable or out of date for the company's decision, even though it is usually cheap and quick to obtain.

  1. AIt is likely to be collected specifically for the company's own decision
  2. BIt may not match the company's specific materials, time period or definitionsCorrect
  3. CIt is always more costly than collecting primary data
  4. DIt cannot be used for forecasting because it is external

Explanation

Secondary data was collected for another purpose, so its categories, definitions, timing or coverage may not fit the company's needs. The first option describes primary data, not a limitation. Secondary data is usually cheaper and quicker, and external data is commonly used in forecasting.

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