An Investigation of the Degree to Which NPV Depends on Assumptions

question 33

Multiple Choice

An investigation of the degree to which NPV depends on assumptions made about critical variables is called a(n)

• A) operating analysis.
• B) sensitivity analysis.
• C) marginal benefit analysis.
• D) decision tree analysis.

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Definitions:

Fixed Manufacturing Overhead Cost

Expenses related to manufacturing that do not change with the level of production, such as rent, salaries, and depreciation on equipment.

Variable Manufacturing Overhead

These are costs that vary with production volume, such as utilities for the manufacturing plant, but cannot be directly traced to specific units of product.

Direct Labor-Hours

Direct labor-hours are the total hours worked by employees directly involved in the production of goods or services, used for costing and operational efficiency assessment.

Predetermined Overhead Rate

calculates an estimated overhead cost per unit of activity, aiding in assigning indirect costs to products or services.