When Is It Appropriate to Include Sunk Costs in the Evaluation

question 14

Multiple Choice

When is it appropriate to include sunk costs in the evaluation of a project?

• A) Whenever they are relatively large
• B) If they improve the project's NPV
• C) If they are considered to be overhead costs
• D) Never

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Definitions:

Factory Labor

The direct and indirect labor costs incurred in manufacturing products, including wages and benefits of workers involved in production.

Total Manufacturing Costs

Sum of all costs directly involved in the manufacturing of a product, including raw materials, labor, and overhead expenses.

Direct Materials Used

The raw materials directly traced to the manufacturing of a product and included in its cost.

Actual Overhead

The actual incurred costs associated with running a production or operation, excluding direct materials and direct labor.