When Estimated Costs Are Used in Applying the Cost-Plus Approach

question 171

True/False

When estimated costs are used in applying the cost-plus approach to product pricing, the estimates should be based on normal levels of performance.

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Definitions:

Capital Project

A long-term investment undertaken to build, add or improve on a capital asset such as buildings or infrastructure, with the expectation of enhancing value.

Sunk Costs

Costs that have already been incurred and cannot be recovered or refunded.

Incremental Cash Flows

The extra cash flow an organization gains by initiating a new project.

Total Cash Flows

The aggregate sum of cash entering and leaving a corporation, which plays a significant role in determining its financial fluidity.