Which of the Following Statements Is the Correct Treatment of Finance

question 24

Multiple Choice

Which of the following statements is the correct treatment of finance charges in project evaluation?

• A)Finance charges should be included in a project's net cash flows and in the discount rate.
• B)Finance charges should be included in a project's net cash flows and excluded from the discount rate.
• C)Finance charges should be excluded from a project's net cash flows and included in the discount rate.
• D)None of the given options.

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Definitions:

Variable Overhead

Costs that vary with the level of production or business activity, such as utilities or indirect materials.

Direct Material

Raw materials and components that are directly incorporated into a finished product and can be easily traced to the product.

Direct Labor-Hours

A measure of the hours worked by employees directly involved in the production process.

Variable Overhead

Expenses that vary with production levels, such as costs for power or materials used in the manufacturing process.