The Primary Difficulty in the Allocation of Overhead Costs to Prospective

question 62

Multiple Choice

The primary difficulty in the allocation of overhead costs to prospective projects is that the:

• A) allocation will reduce the project's NPV.
• B) discount rate is unknown.
• C) costs may not represent an incremental expense.
• D) expenses may have been previously allocated.

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Definitions:

Transactions

Financial events that affect the assets, liabilities, or equity of a company, recorded in its accounting system.

Accounting

The systematic process of recording, measuring, and communicating information about financial transactions.

Risk

The exposure to uncertainty or potential financial loss in decision-making and investment.

Return

The profit or loss derived from an investment or business operation after all expenses are accounted for.