A Project Profitability Index Greater Than Zero for a Project

question 134

Multiple Choice

A project profitability index greater than zero for a project indicates that:

• A) the discount rate is less than the internal rate of return.
• B) there has been a calculation error.
• C) the project is unattractive and should not be pursued.
• D) the company should reevaluate its discount rate.

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Definitions:

Overapplied

A term used when the estimated costs, such as overhead, allocated to a product or project exceed the actual costs incurred.

Manufacturing Overhead Applied

The allocation of manufacturing overhead costs to individual units of product based on a predetermined rate or method.

Work in Process Inventory

Work in Process Inventory consists of materials and products that are in the process of being manufactured but are not yet complete.

Work in Process

The portion of inventory that is in the production process but has not yet been completed.