Question

How do you handle or react to allocation of overhead costs on a project that you have capital budgeted for the announcement that’s been accepted?

Answer 1

I would have included allocation of overhead cost in my project cost only so that my calculation becomes easy of capital budgeting. If I don't include overhead cost of my project it may lead to the wrong decision which whole company has to suffer. For an example, if I want to purchase an equipment that is worth Rs50,000. Rs50,000 is only the cost price of equipment. I would also include transportation, fitting cost and some allowance of testing and damage of machine which is considered as the overhead of the equipment. So in this example, the total cost of equipment would become Rs60,000 including overheads. After that, I will do capital budgeting of the project which would give me the correct decision of the project.