The Correct Method to Handle Overhead Costs in Capital Budgeting

question 29

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.

---

Definitions:

Goodwill

Represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. It reflects intangible assets like brand reputation and customer relationships.

Inventoriable Costs

Costs associated with obtaining or manufacturing products intended for sale, which become part of a company’s inventory.

Computer Software

Refers to programs and other operating information used by a computer to perform specific tasks.

Product Duplication

The process of creating a product that closely resembles or copies the design and functionality of another product in the market.