When Estimating Cash Flows for Capital Budgeting Projects

question 160

Multiple Choice

When estimating cash flows for capital budgeting projects:

• A)interest expenses incurred to finance the project are included.
• B)interest expense is considered in the cash flow estimates only if the financing is principally from debt.
• C)interest expense is never included in the cash flow estimates.
• D)None of the above

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Definitions:

Direct Materials Purchases Variance

The difference between the actual cost of direct materials purchased and the expected cost at standard prices.

Standard Costs

Predetermined costs for materials, labor, and overhead that are used as benchmarks to measure actual performance and cost control.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity expected to be used, multiplied by the standard cost per unit.

Direct Materials Purchases Variance

The difference between the actual costs of materials purchased and the expected (standard) costs.