Which of the Following Makes Using Present Value Approaches in Capacity

question 44

Multiple Choice

Which of the following makes using present value approaches in capacity decisions difficult?

• A)The discount rate must be adjusted to account for inflation.
• B)Some cash flows are positive and other cash flows are negative.
• C)The payback period might not be long enough to justify a capacity decision.
• D)Capacity decisions are made amidst much uncertainty, so cash flows cannot be estimated with great accuracy.
• E)There is a cash outflow at the outset followed by, possibly, net cash inflows.

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Definitions:

FIFO Method

"First In, First Out," an inventory valuation method where goods purchased or produced first are sold first.

Cost of Production

The total expenses incurred in manufacturing a product or providing a service, which includes both direct costs and allocated indirect costs.

Subsidiary Ledger

Individual accounts with a common characteristic grouped together in a separate or secondary ledger, which is used to support a controlling account in the general ledger.

Job Cost Sheet

An account in the work in process subsidiary ledger in which the costs charged to a particular job order are recorded.