Deck 8: Cost Estimation and Budgeting

Question 1

Which worker's wages would constitute a direct cost for a construction project?

A) The project's cost accountant
B) The brick mason
C) The architect's assistant
D) The foreman

Answer 1

B

Question 2

The gentleman farmer and surrealist aficionado commissioned a mural on barn that was an homage to Salvador Dalí's Persistence of Memory with a few farm animals included.The project would require the services of a senior muralist,a junior muralist,and a gofer.The senior muralist has an annual salary of $120,000,the junior muralist draws an annual salary of $75,000,and the gofer makes $30,000 per year.It is anticipated that the project will require 25 hours of senior muralist time,40 hours of junior muralist time,and 60 hours of gofer time.Overhead charges vary by position; the gofer has a lower overhead rate (30%)than the two muralist positions (50%).Use 2080 hours as an estimate for the number of hours in a year and a 15% factor for personal time.What is the total direct labor cost for the project?

Answer 2

The table displays the sequence of calculations; the total direct labor cost is $6,269.71

Question 3

You are probably looking at a bill for a variable cost when you are paying for:

A) Leased capital equipment.
B) Salaries.
C) Materials.
D) Health insurance.

Answer 3

C

Question 4

The charge that is most likely a fixed cost is for:

A) Materials.
B) Equipment rental.
C) Direct labor.
D) Utilities.

Question 5

A normal cost is incurred when:

A) Overtime is used more than originally planned.
B) Shipments are expedited.
C) Additional temporary workers are brought on site.
D) The aggressive baseline plan is adhered to.

Question 6

Which of the following is a direct cost?

A) Labor
B) Rent
C) Depreciation on equipment
D) Health benefits

Question 7

Which of these indirect costs is typically classified as an overhead cost?

A) Advertising
B) Shipping
C) Sales commissions
D) Taxes

Question 8

Direct costs are those clearly assigned to the aspect of the project that generated the cost.

Question 9

Which of these is typically a nonrecurring cost?

A) Site study
B) Labor
C) Material
D) Sales

Question 10

The term expedited cost has the same meaning as crashing cost in the project management milieu.

Question 11

Material is an example of a cost that is recurring,variable and direct.

Question 12

Which of these is typically a recurring cost?

A) Preliminary market analysis
B) Personnel training
C) Outplacement services
D) Logistics

Question 13

Unplanned costs incurred when steps are taken to speed up a project's completion are called:

A) Expedited costs.
B) Accelerated costs.
C) Pass-through costs.
D) Normal costs.

Question 14

Workers paid $15.00 per hour with an overhead charge of 1.45 and a personal time allowance of 1.15,have what total direct labor cost for an 8-hour work day?

A) $151.30
B) $174.00
C) $200.10
D) $236.80

Question 15

Three workers complete a full 8-hour day finishing concrete for a terrace.All three workers are paid $12 an hour and the job bills to the customer for $450.What are the total direct labor costs?

A) $450
B) $12
C) $288
D) $96

Question 16

Provide examples and discuss the differences between direct and indirect costs.

Question 17

A systems analyst is paid at the rate of $50/hour and will be needed for 40 hours.Her employer uses an overhead multiplier of 60% and does not factor in personal time.Her total direct labor cost should be billed at:

A) $2,000.
B) $3,200.
C) $1,250.
D) $4,500.

Question 18

An expedited cost is one that does not vary with respect to their usage.

Question 19

Which of these indirect costs is typically classified as a selling or administrative cost?

A) Secretarial support
B) Utilities
C) Insurance
D) Depreciation

Question 20

What are four major categories of costs? Provide descriptions for each category.

Question 21

An activity with a learning rate of 0.8 takes 30 hours for the first six units.How long will it take to complete this task for the 12th time?

A) 2.985 hours
B) 3.055 hours
C) 3.135 hours
D) 3.325 hours

Question 22

An order of magnitude estimate is usually more accurate than a ballpark estimate.

Question 23

If it takes 40 hours to complete the first unit and the company knows from experience that the learning rate should be 0.75,how fast can they be expected to finish all ten units?

A) 208.48 hours
B) 213.52 hours
C) 218.46 hours
D) 223.54 hours

Question 24

The order of magnitude cost estimate is used when:

A) Ballpark estimates are not considered accurate enough.
B) Historical data are readily available.
C) Information or time is scarce.
D) Parametric estimation has already been performed.

Question 25

Once most of the design work is complete,at a point when the scope and capabilities of the project are quite well understood,a ________ may be developed.

A) definitive estimate
B) comparative estimate
C) parametric estimate
D) non-parametric estimate

Question 26

Cost estimates that are based as a guideline on real numbers,or figures derived after the completion of preliminary design work,are:

A) Definitive estimates.
B) Order of magnitude estimates.
C) Parametric estimates.
D) Feasibility estimates.

Question 27

An activity with a learning rate of 0.85 takes 25 hours for the first iteration.How long will it take to complete this task for the 15th time?

A) 12.55 hours
B) 12.85 hours
C) 13.15 hours
D) 13.25 hours

Question 28

Effective comparative estimates rely most heavily on:

A) An accurate inflation factor.
B) The correct number of years elapsed between the old project and the current one.
C) True comparability between the current project and previous project work.
D) The correct number of employees on the new project compared with the previous one.

Question 29

Comparative estimates are more accurate than definitive estimates when applied to the same project.

Question 30

Rank the four different types of cost estimates from most to least accurate and explain what the inputs are to each type.

Question 31

Estimates based on the assumption that historical data can be used as a frame of reference for current estimates are:

A) Comparative estimates.
B) Ballpark estimates.
C) Definitive estimates.
D) Feasibility estimates.

Question 32

What learning rate is being demonstrated if the first unit takes 25 hours and the third unit takes 24 hours to complete?

A) Greater than or equal to 97 percent
B) Less than 97 percent but greater than or equal to 95 percent
C) Less than 95 percent but greater than or equal to 93 percent
D) Less than 93 percent

Question 33

Which of these estimates should be the most accurate?

A) Parametric
B) Definitive
C) Comparative
D) Order of magnitude

Question 34

If it takes 40 hours to complete the first unit and the company knows from experience that the learning rate should be 0.80,how fast can they be expected to finish all twelve units?

A) 18 hours
B) 289 hours
C) 264 hours
D) 316 hours

Question 35

Explain the difference between normal and expedited costs,fixed and variable costs,and recurring or nonrecurring costs.Create a 2 × 2 × 2 matrix and provide one example each (8 total examples)of each combination of these costs.

Question 36

When their baby was ready to head off to college,the beleaguered parents pulled out the college folder from their file cabinet and added up the cost of putting their first child through college from 1995-2000.The mother whimpered as she factored in the rising cost of tuition,fees,books,and inflation by multiplying the total by 2.5.The father felt a searing pain go through his chest as he saw the total,knowing full well that their cost estimation approach,called:

A) An order of magnitude estimate, was highly accurate.
B) Parametric estimation, was highly accurate.
C) Feasibility estimation, was highly accurate.
D) Definitive estimation, was highly accurate.

Question 37

When asked to provide an estimate of an irrigation system,Pete looked from one end of the field to the other,licked a finger and held it in the air,squinted into the sun and said $25,000,give or take 30%.The technique employed for cost estimation is:

A) Parametric.
B) Comparative.
C) Definitive.
D) Ballpark.

Question 38

A key for developing project cost estimates is to:

A) Cost the project while considering the total package.
B) Cost the project on a work package and task basis.
C) Cost the project on a major module basis.
D) Cost the project and add 33% for contingency.

Question 39

It took 44 hours of analysis to complete the first phase,but the second phase was done in 42 hours.If this learning rate continues,then the 8th analysis should take a mere:

A) 36 hours and 26 minutes, give or take.
B) 37 hours and 36 minutes, give or take.
C) 38 hours and 16 minutes, give or take.
D) 39 hours and 6 minutes, give or take.

Question 40

It took 66 hours of analysis to complete the first phase,but the second phase was done in 61 hours.If this learning rate continues,then the 8?? analysis should take a mere:

A) 52 hours and 11 minutes, give or take.
B) 53 hours and 22 minutes, give or take.
C) 54 hours and 33 minutes, give or take.
D) 55 hours and 44 minutes, give or take.

Question 41

What are the major issues with cost estimation of software projects?

Question 42

A plan that identifies the allocated resources,the project's goals,and the schedule that allows an organization to achieve those goals is:

A) The work breakdown structure.
B) The risk management plan.
C) The statement of work.
D) The project budget.

Question 43

Describe any three reasons that cost overruns occur in project work.

Question 44

What are parametric cost estimates and how are they developed?

Question 45

Which statement about the use of learning curves is BEST?

A) Learning curve effects stay constant across projects.
B) A job that is substantially re-engineered will have no disruption of its learning curve.
C) It may be more likely to see learning curve effects in construction than in research and development.
D) Every worker performing an identical task will exhibit the same learning effect.

Question 46

The project management research in brief titled "Delusion and Deception Taking Place in Large Infrastructure Projects," describes three reasons that cost overruns occur in large infrastructure project work.Briefly describe these three reasons

Question 47

A common reason for cost overruns in a project is a low initial estimate of project cost.

Question 48

Juan Valdez trades in his old donkeys for two new llamas in order to transport his mountain grown coffee to the marketplace.Llamas make excellent pack animals and are surefooted,so I should be able to spend more time harvesting and less time wrangling animals,Juan thought to himself as he led the two back to his mountain farm.Much to his dismay,the first time he tried to strap the bags of coffee beans to his new llamas they resisted by running away and when he got close,they spit copiously.However,he was persistent and methodical,and he noticed that things went a little better each day.The time it took to get the llamas loaded up is summarized in the table.

What learning rate is evident from the data?
How long will it take to load up the llamas next month (on the 30th attempt)if the same learning pattern continues?

Question 49

Whether it is the Boeing V-22 Osprey or a simple storm door installation for a do-it-yourselfer,nothing is ever completed as quickly or as cheaply as initial estimates due to:

A) Lack of definition.
B) Low initial estimates.
C) Specification changes.
D) Unexpected technical difficulties.

Question 50

Function point analysis is a system for estimating the size of software projects based on the number of lines of code a typical programmer can write in a day.

Question 51

Define learning curve theory and describe how learning curves are used in project management.

Question 52

A learning rate of 90% means that for every doubling of output,the time required by the activity falls by 10%.

Question 53

Poor initial scope development and work breakdown structure often creates cost overruns that are attributable to:

A) Lack of definition.
B) Deliberate low initial estimates.
C) Unexpected technical difficulties.
D) External factors.

Question 54

The 1974 model Eldorado is a three-ton behemoth with a 500-cubic-inch engine that is long on style but short on gas mileage.During its five-year development process no one could possibly have anticipated that gas prices would go through the roof in 1973,making it far more expensive to operate and subsequently less attractive to a gas-price-conscious public.Design engineers scrambled to change the car in the last few months leading up to its debut,adding a slimmed down version with a smaller engine.All of the design overtime meant that the project budget took a big hit though,thanks to:

A) The initial low estimate.
B) The unexpected technical difficulties.
C) This external factor.
D) The lack of definition.

Question 55

There was no way that the study tour to Italy could cost only $1500 for 14 days and 13 nights and include all transportation,meals and hotels,but the smarmy professor knew that students would balk at a higher advertised price.Once they were thousands of miles away from home in a country where none of them spoke the language it would be easier to tell them about unanticipated charges and approach the more realistic price of $3500 per person.This type of:

A) Specification change is a common reason for a cost overrun.
B) Lack of definition is a common reason for a cost overrun.
C) Low initial estimate is a common reason for a cost overrun.
D) Unexpected technical difficulty is a common reason for a cost overrun.

Question 56

What are function points and how do they work?

Question 57

It began as a simple macro that would extract grades and post them on a web site,but once the web programmer began the work,he became obsessed with various charting features,grade summaries,and reports that could be added to make this the grandest web site in the tri-county area.As 2 hours of programming work grew to 20 and then 80,he knew that the client wouldn't be happy with the cost overrun.The only comment he mumbled as he finished his work was:

A) "I had some technical difficulties, sorry."
B) "There were some specification changes, sorry."
C) "This project lacked definition from the outset, sorry."
D) "I thought I'd never get the wizard's hat! Oh, by the way, your grades work."

Question 58

What learning rate is being demonstrated if the first unit takes 25 hours and the seventh unit takes 22 hours to complete?

A) Greater than or equal to 97 percent
B) Less than 97 percent but greater than or equal to 96 percent
C) Less than 96 percent but greater than or equal to 95 percent
D) Less than 95 percent

Question 59

Big Mike has to prepare a bid for the swimming pools to be placed in every backyard in a new housing addition.Each swimming pool represents only a slight variation on the other,so there is a good opportunity to leverage learning effects in the bid process.A swimming pool installation can be broken down into four major steps: excavation,concrete,plumbing,and finish work.Mike has found the best contractors and asks each of them how long it will take to complete work on the first pool and what their learning rates are.Amazingly,each contractor is intimately familiar with learning curve theory and knows what his learning rate is for this type of work.This information is summarized in the table.
How long will it take to complete the 25th pool for the subdivision?
How long will it take to complete all 25 pools for the subdivision?

Question 60

Acme is exploring two locations for a new plant to supply product for a government contract.They dispatch a team of industrial engineers and cost estimators to the Minneapolis-St.Paul area of Minnesota and to Kennewick-Pasco-Richland area in Washington.After conducting some tests,the teams return with some unusual findings,the Minneapolis-St.Paul workers seem to obey classic learning effect rules; their learning rate is 80% and is based on a doubling of output.They are much slower than their counterparts at the other site; it is estimated that the first batch units they assemble will take them 700 hours.The workforce in the Kennewick-Pasco-Richland area is much faster; their first batch will take only 470 hours.Strangely,these workers also exhibit learning effects,but their learning is based on a tripling of output rather than the traditional doubling and their rate is 78%.How many batches must be made before Minneapolis-St.Paul's time falls below Kennewick-Pasco-Richland's?

Question 61

A budget containing disaggregated figures across the schedule when work is planned is a:

A) Time-phased budget.
B) Chronic budget.
C) Temporal budget.
D) Calendar budget.

Question 62

A budgeting method that assigns costs first to activities and then to projects based on each project's use of resources is:

A) Activity-based budgeting.
B) Zero-based budgeting.
C) Top-down budgeting.
D) Bottom-up budgeting.

Question 63

The project plan is supported by:

A) The work breakdown structure, the budget, and the schedule.
B) The work breakdown structure, the budget, and the work packages.
C) The work breakdown structure, the work packages, and the schedule.
D) The work breakdown structure, the schedule, and the contingency plan.

Question 64

Which of the following is NOT contained in a typical time-phased budget?

A) Total expenses for each activity
B) Total expenses for each time unit
C) Cumulative expenses for each time unit
D) Cumulative time for each expense

Question 65

What is the cumulative cost in February in this time-phased budget?

A) $23,750
B) $37,000
C) $45,050
D) $50,550

Question 66

When properly performed,bottom-up budgeting has the disadvantage of:

A) A lack of detail needed in project plans.
B) A lack of coordination among project managers and functional department heads.
C) Being a hindrance to top managers when prioritizing projects that are competing for the same scarce resources.
D) A reduction of top management's control of the budget process to one of oversight.

Question 67

The new artisanal greenhouse would require 700 empty wine bottles be embedded in a frame made of clay and straw.The builder,a man with too much time on his hands,had determined that each time a bottle was added to the structure it would take 30 minutes of labor at $7.50 per hour in the blazing sun.An activity-based costing of the entire artisanal greenhouse revealed that the total labor cost would be:

A) $2,525.
B) $2,850.
C) $2,625.
D) $2,450.

Question 68

An advantage of top-down budgeting is:

A) That top management estimates of project costs are often quite accurate, at least in aggregate.
B) An elimination of the friction between top and lower levels in the competition for budget money.
C) That projects are no longer a zero-sum game among lower level managers.
D) That top management budgets, by definition, cannot experience overruns.

Question 69

There is a tendency for different departments or functions to compete for scarce resources in a zero-sum game when bottom-up budgeting is used to develop a project budget.

Question 70

What's the relationship between WBS,scheduling,and budgeting?

Question 71

Top-down budgeting,where input is gathered directly from the organization's top management,is often quite accurate.

Question 72

What is the total project budget in this time-phased budget?

A) $85,450
B) $87,550
C) $82,050
D) $86,550

Question 73

The new bridge would require 14 piers to support it and it was known that each time a pier is sunk into the harbor it would take 30 man hours of labor at $50 per hour.An activity-based costing of the entire pier system results in a total labor cost of:

A) $19,500.
B) $21,000.
C) $22,500.
D) $24,000.

Question 74

How are top-down and bottom-up budgets created? What advantages does each approach hold over the other?

Question 75

Activity-based costing and bottom-up budgeting share the step of:

A) Identifying cost drivers associated with each activity.
B) Identifying activities that consumer resources and assigning costs to them.
C) Assigning costs to projects by multiplying the cost driver rate times the volume of units.
D) Tending to overestimate project costs due to the lack of involvement by top management.

Question 76

What is the total project budget in this time-phased budget?

A) $251,382
B) $389,828
C) $408,237
D) $478,300

Question 77

A budget that is created by starting with the work breakdown structure,determining costs for each work package,and then adding these costs together is:

A) Zero-based budgeting.
B) Top-down budgeting.
C) Bottom-up budgeting.
D) Activity-based budgeting.

Question 78

What is the total amount budgeted for design costs in this time-phased budget?

A) $5,250
B) $4,500
C) $9,750
D) $12,550

Question 79

Input is received from an organization's management to create a project budget in:

A) Zero-based budgeting.
B) Top-down budgeting.
C) Bottom-up budgeting.
D) Activity-based budgeting.

Question 80

What is the total amount budgeted for March in this time-phased budget?

A) $37,250
B) $82,050
C) $41,000
D) $45,050