Project a Has a Payback Period of 4 Years, and Project

question 91

Multiple Choice

Project A has a payback period of 4 years, and Project B has a payback period of 6 years. Which project is more profitable?

• A) Project A
• B) Project B
• C) They are equally profitable
• D) Cannot be determined

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Definitions:

Prime Costs

The combined costs of direct material and direct labor required to produce a good.

Conversion Costs

Costs incurred to convert raw materials into finished goods, including direct labor and manufacturing overhead.

Prime Costs

The combination of direct materials and direct labor costs that are directly attributable to the production of goods.

Nonmanufacturing Cost

Expenses not directly involved in the production of goods, such as selling, administration, and other overhead costs.