Allocations of Overheads Should Not Affect a Project's Incremental Cash

question 3

Multiple Choice

Allocations of overheads should not affect a project's incremental cash flows unless the:

• A) project actually changes the total amount of overhead expenses.
• B) overhead will not be recovered at the end of the project.
• C) overhead is not currently fully allocated to existing projects.
• D) accountant is required to allocate costs to this project.

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Definitions:

MC

Often referred to as Marginal Cost, it is the increase in total cost that arises from an extra unit of production.

Inputs

Resources used in the production process to produce goods or services.

Production

The process of creating goods or services using inputs such as labor, materials, and technology.

Spreading Effect

refers to the phenomenon where the impact of a particular event, policy, or action extends or disperses across a wider area or population.