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In question Neptune (6/08), the activity based costs amount to 140m in the first year, and grow at 5% pa for the rest of the project’s life. Why are we not including this in the APV calculation?
Also sir, in Proteus co (12/11), we have not accounted for the allocated overhead charge payable by Tyche to Proteus co. Should we also ignore the allocated OHs?
Overheads are only relevant if the total overheads increase as a result of doing the project.
If the company simply re-allocates the total overheads between projects (for profit purposes) then it is not relevant (because the total will not have changed).
Since Neptune called them ‘activity-based overheads’ it implied that it was simply a re-allocation of an existing fixed total and is therefore not relevant.
(It was a bit nasty wording it like that in Neptune (it was the previous examiner). In Proteus (which was the current examiner) it is made very clear that it is a reallocation (and is therefore not relevant).)
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