When a Firm Has the Opportunity to Add a Project

question 35

Multiple Choice

When a firm has the opportunity to add a project that will utilize excess factory capacity (that is currently not being used) , which costs should be used to help determine if the added project should be undertaken?

• A)Allocated overhead costs
• B)Sunk costs
• C)Incremental costs
• D)Average costs

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Definitions:

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities, maintenance, and salaries for management.

Selling Price

The amount for which a product or service is sold to the customer, which may include cost, overheads, and profit margin.

Variable Manufacturing Overhead

Expenses related to manufacturing that fluctuate with production volume, including costs for supplies and variable labor.

Machine-Hours

A measure of production time using machinery, often used to allocate manufacturing overhead based on the time machines are used in the production process.