Which of the following overhead expenses is a relevant, incremental cash flow?
A) The project will represent 10% of the firm's revenues, so 10% of the CEO's compensation is allocated to the project.
B) The project will occupy 10% of the firm's available space, so 10% of the firm's property insurance is allocated to the project.
C) The project will increase the number of employees by 10%, so an additional human resources assistant must be hired to handle personnel issues directly related to the project.
D) None of the expenses above should be allocated to the project.

Question

Quizplus · Accepted Answer

The increase in employees directly related to the project is a relevant, incremental cash flow as it represents a necessary expense that would not have occurred without the project. The allocation of CEO compensation and property insurance are not directly related to the project and therefore are not relevant to the project's cash flows.

Which of the Following Overhead Expenses Is a Relevant, Incremental