At the beginning of the year, the Personnel Department hired new staff. Six months later, one of the new staff members has been re-assigned to work on your project. How should the salary of the staff member be considered within the cost structure of your project?

A) It should be considered a part of the incremental overhead.
B) It is a sunk cost because the person already worked for the firm prior to being assigned to the project.
C) It should remain part of the Personal Department's budget.
D) It is a part of the operating budget within the project as part of the salary expense.

Question

Robert Southworth · Accepted Answer

Final Answer : D, Explanation :  The salary of the staff member should be considered a part of the operating budget within the project as it is a direct expense related to the project. It is not a sunk cost because the staff member's work on the project will generate new benefits and outputs. It should also not remain a part of the Personnel Department's budget as the staff member is now working on the project, and their salary should be accounted for in the project's budget. It should also not be considered as part of the incremental overhead, as this term typically refers to fixed costs that do not vary with the level of project activity, whereas the salary expense for the staff member will vary depending on how long they work on the project.

Definitions

Learning Objectives

Learning Objectives

Related questions