The Correct Method to Handle Overhead Costs in Capital Budgeting

question 66

Multiple Choice

The correct method to handle overhead costs in capital budgeting is to:

• A)Allocate a portion to each project
• B)Allocate them to projects with the highest NPVs
• C)Ignore all except identifiable incremental amounts
• D)Ignore them in all cases

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Definitions:

Utility

The total satisfaction received from consuming a good or service.

Total Utility

The total satisfaction received from consuming a certain quantity of goods or services.

Total Utility

The total satisfaction or benefit received by consuming a given total quantity of a good or service.

Marginal Utility

Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.