Capital Budgeting Is Both a Decision Making and Control Tool

question 14

Multiple Choice

Capital budgeting is both a decision making and control tool. Which of the following is an example of capital budgeting as a control tool?

• A) A company uses capital budgeting techniques to evaluate a group of prospective alternative projects.
• B) A large manufacturer sets up a "capital relief" fund to help supplement sustainability projects that would not meet targeted rates of returns without the capital relief fund assistance.
• C) When considering capital expenditures, a company looks at a minimum of six potential (alternative) projects.
• D) A company's capital project is not meeting the level of profitability expected, will not meet the targeted NPV, and is abandoned.

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Definitions:

Direct Labor-Hours

The total number of hours worked by employees who are directly involved in the production process, typically used as a base for applying manufacturing overhead costs.

Overhead Cost

Indirect costs of a business that are not directly tied to a specific product or service, such as rent, utilities, and administrative expenses.

Activity-Based Costing

A costing method that assigns costs to products or services based on the activities they require, aiming for more precise cost allocation.

Machine-Hours

Represents the amount of time machines are operational during production, critical for planning and cost allocation purposes.