The Use of a Profitability Index Will Always Provide Results

question 77

Multiple Choice

The use of a profitability index will always provide results consistent with selecting the project with the:

• A)Highest NPV
• B)Highest IRR
• C)Largest dollar invested per rate of return
• D)Largest return per dollar invested

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Definitions:

Overhead Rate

A measure used to allocate indirect costs to produced goods, calculated by dividing total overheads by an allocation base like labor hours or machine hours.

Direct Labor Cost

The cost of labor directly involved in the production process, excluding indirect expenses like maintenance.

Predetermined Overhead Rate

This rate is used to allocate overhead costs to products or services based on a specific formula, often involving direct labor hours or direct material costs, aiding in the budgeting and costing process.

Direct Labor Costs

The wages and related benefits paid to employees who are directly involved in the production of goods or the provision of services.