To Avoid Rejecting Projects That Actually Should Be Accepted

question 43

Multiple Choice

To avoid rejecting projects that actually should be accepted,
1) intangible benefits should be ignored.
2) conservative estimates of the intangible benefits' value should be incorporated into the NPV calculation.
3) calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the amount of the negative NPV.

• A) 1
• B) 2
• C) 3
• D) both 2 and 3 are correct.

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Definitions:

Activity Cost Pool

A grouping of all costs related to a specific activity or process in a company, used in activity-based costing.

Activity-Based Costing

A costing method that assigns costs to products based on the activities that go into making them, providing a more detailed measure of costs.

Overhead Applied

A calculation that allocates a portion of estimated overhead costs to individual units of production based on a predetermined formula.

Overhead Applied

The portion of overhead costs assigned to a specific job or department based on a predetermined rate or method.