Which type of cost should be included to cover unexpected expenses when estimating a budget?

When estimating a budget, including a contingency cost is essential because it serves as a financial buffer for unexpected expenses that may arise during a project or operation. Contingency costs are specifically set aside to address uncertainties and unforeseen circumstances, ensuring that a project can proceed without financial strain in case additional funding is needed.

Fixed costs are expenses that remain constant regardless of the level of business activity, such as rent or salaries, which do not account for unexpected situations. Variable costs fluctuate with the level of production or sales, making them unreliable for addressing unforeseen expenses directly. Operational costs refer to the expenses associated with the day-to-day functioning of a business but do not specifically account for unexpected disruptions or additional financial needs. Thus, the inclusion of contingency costs in a budget is critical for effective financial planning and risk management.