## Cost Management

PM Milestone Project Management Templates

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1. A project manager wants to make a trip to California by car. The project manager knows how many miles it will be to drive to California, the current price of gasoline, and how many miles the car will go on a gallon of gasoline. From this information he or she can calculate the estimated cost of the gasoline for the trip. This is a form of what kind of estimating technique?

a. Definitive b. Analogous c. Parametric d. Quantitative

2. A project manager wants to make a trip to California by car. The project manager knows someone who has made this trip before. This person has a similar car to the one that the project manager has, and the person has kept good records on the money spent for fuel on the trip. The distance that the project manager will travel is 10% farther than the other person's trip. By multiplying the cost of fuel reported by the other person by 1.1, the project manager is performing what kind of estimate?

a. Definitive b. Analogous c. Parametric d. Quantitative

3. To distinguish top-down estimates from bottom-up estimates, it would be correct to say that the bottom-up estimate would be:

a. Less accurate.

b. About equal in accuracy to the top-down estimate.

c. More accurate.

d. No different to perform than the top-down estimate.

4. A project manager and the project team identify several specific risks in a project. The expected value of these risks is estimated at \$10,000. The impact on the project brought about by these risks is estimated at \$40,000. What value should be entered into the management reserve for these risks?

5. A project manager and the project team identify several specific risks in a project. The expected value of these risks is estimated at \$10,000. The impact on the project brought about by these risks is estimated at \$40,000. What value should be entered into the contingency reserve for these risks?

6. What characteristic best describes the cost baseline?

a. Total budget for the project b. Time-phased budget for the project c. Total budget for the project including the contingency budget d. Total budget for the project including the contingency budget and the management reserve

7. A project is formed to produce a product that will be used for transporting people. Costs that are associated with the project that occur after the delivery of the product to the customer are considered to be what kind of cost?

a. Prorated costs b. Expenses c. Life cycle cost d. Expected value

8. A project team receives an approved change request from the customer. The team has previously estimated that the cost to implement this change is \$10,000. The customer has agreed to pay this amount for the additional work. The customer realizes that there is a 50 percent chance that this change will not work and will later be removed. What change, if any, should be made in the budget?

a. The project budget should not be increased.

b. The project budget should be increased by \$15,000.

c. The project budget should be increased by \$10,000.

d. The project budget should be increased by \$5,000.

9. The act of doing anything that will help to bring future project performance into line with the project plan is called:

a. Budget update.

b. Revised cost estimate.

c. Corrective action.

d. Contingency planning.

10. Which of the following choices would be an acceptable cause for ''rebaselining'' a \$10 million project?

a. The monthly consumer price index on some of the commodities used on the project has been identified as having gone up by 1.6%, an increase of 46% over the 1.1% that had been budgeted.

b. The client has authorized a \$10,000 addition to the scope of the project.

c. The contractor's company has instituted a quality program on which it has pledged to spend \$1 million during the next year.

d. The productivity in the drafting department has been shown to be lower than anticipated, which has resulted in 1,000 additional hours, a 78% increase over what was budgeted.

11. In terms of earned value reporting, a project is considered complete when:

a. The BAC is equal to the PV.

d. The BAC is equal to the EV.

12. The time-phased cost of the project that reflects the expenditures rather than the consumption of a resource that will be used to measure and monitor cost performance on a project is the:

a. Spending plan.

b. Cost baseline.

d. Schedule.

13. A large piece of equipment is needed for the project. It will be retained and used after the project is completed. The equipment has a value of \$500,000, and it has a scrap value of \$50,000 at the end of its useful life of ten years. If the sum of the years' digits method of depreciation is used, what is the depreciation that is taken at the end of the third year?

14. Using the formula: Present value = 5/(1 + i)n where i is the interest rate in percentage, n is the number of periods, and S is the starting amount, the following table is produced:

 Periods 10% 12% 14% 1 0.909 0.893 0.877 2 0.826 0.797 0.769 3 0.751 0.712 0.675 4 0.683 0.636 0.592 5 0.621 0.597 0.519

Based on the table, what is the value of an annual income flow of \$1,300 each year over the next three years at 12%?

15. Life cycle costing:

a. Is a method of including all of the cost associated with the project over its entire life.

b. Is a federal government accounting method.

c. Is a method of predicting the life of a project.

d. Is a method of evaluating projects when they are complete.

The following table and description refer to questions 16 through 22.

A project manager is using the earned value reporting method to manage his project. The following table shows the data collected to date. The plan is for the project to be complete after eight weeks. The earned value report shows data collected for the first four weeks of the project. The figures shown in the table are cumulative.

Week PV AC EV

1,000 3,000

1,000 2,000

1,000 2,500

5,GGG 7,GGG 1B,GGG 17,GGG 19,GGG 2G,GGG

5,GGG 9,GGG

6,GGG

7,GGG

16. What is the cost performance index for week 4?

17. What is the schedule performance index for week 3?

18. What is the BAC for the project during week 4?

19. During week 5 it is found that some of the work that was reported complete in week 2 was considered unacceptable. It will require \$500 to fix the problem and make this work acceptable. The work is scheduled to be done in week 6. No other work is reported to be complete during week 5. What is the EV for week 5?

20. What is the cost variance for week 4?

21. What is the schedule variance in week 2?

22. What is the EAC at week 4?

23. The calculation of the EAC assumes that:

a. The schedule performance index will remain the same for the remaining part of the project.

b. The cost performance index will remain the same for the remaining part of the project.

c. The BAC will be different by the end of the project.

d. The EAC will continuously increase for the remaining portion of the project.

24. What factors need to be known in order to be able to calculate the ETC?

a. Budget at completion, actual cost, and planned value b. Budget at completion, earned value, and actual cost c. Estimate at completion and planned value d. Estimate at completion and actual cost

25. A construction company is being measured by the earned value reporting method. During the project one of the tasks, installing ten elm trees, was completed. The planned value for this task was \$4,000, and it was completed two weeks ago. Unfortunately for the contractor, maple trees should have been planted. The customer insists that maple trees be planted and that the elm trees be removed. As of this time the elm trees are still in the ground, but the contractor has agreed to do the work of replacing them. What action should be taken on the earned value report?

d. Make no changes since the vendor has agreed to fix the problem

26. Learning curve theory emphasizes that in producing many goods:

a. Cost decreases as production rates increase.

b. Average unit cost decreases as more units are produced.

c. Materials become cheaper when they are purchased in bulk.

d. Laborers become more productive because of technological advances.

27. A project manager is considering applying learning curve theory to his project. The project involves designing a number of software modules that are very similar. According to the cost figures that have been collected the first unit required 100 person-hours to design and test. The second unit required 90 person-hours to design and test. How many person-hours will the eighth module take to design and test?

28. A project manager decides that for this point in the project life cycle she will use an analogous estimate. One of the things that the project manager will not have to worry about in preparing this estimate is:

a. Activity listings.

b. Scaling the estimate.

c. Quantifying the estimate.

d. Historical support for the figures used.

29. A project manager is preparing the budget for the project. There are several inputs to the budgeting process that the project manager will use. One of the things that the project manager will not use is the:

a. Cost estimates.

c. Cost baseline.

d. Work breakdown structure.

Use the following information for questions 30 and 31.

A project team has a programmer on the team. The programmer will work on the project for twenty-six weeks as a full-time team member. Her utilization is 72%, productivity is 80%, basic wages are \$50 per hour, fringe benefits are 30%, and overhead costs are 50% of wages plus fringe benefits. Use a forty-hour work week.

30. What is the cost of this employee for the project?

31. One of the tasks that the person in the above project is assigned requires 100 hours of effort. What is the cost of the task?

32. The contingency budget will:

a. Reduce the probability ofscope changes.

b. Reduce the probability of cost overruns.

c. Increase the probability of a cost overrun.

d. Increase the probability of scope changes.

The following table should be used for questions 33, 34, and 35.

A project manager is assigned to a project early in the project life cycle. One of the things that must be done is to do a justification for the project. Since very little information is known about the project, the estimate is considered to be a rough estimate. The following table is the manager's estimate of the cash flows that will take place over the next five years.

End of Year Cash Flow In Cash Flow Out

300,000 400,000 100,000 50,000

500,000 90,000 100,000 175,000 35,000

33. What is the payback period for this project?

a. One year b. Two years c. Three years d. Four years

34. What is the net cash flow at the end of five years?

35. If the net present value for each of the cash flows were calculated at a 10% interest rate, the net present value cash flow at the end of five years would be:

a. Greater than the total cash flow without the net present value applied.

b. Less than the total cash flow without the net present value applied.

c. The same as the total cash flow without the net present value applied.

d. Unable to be calculated with the information supplied.

36. During the full life cycle of the project, a plot of the project's expected expenditures will usually follow a characteristic "S" shape. This indicates that:

a. There is a cyclic nature to all projects.

b. Problems will always occur in the execution phase.

c. There are high expenditures during closeout.

d. The bulk of the project budget will be spent in the execution phase.

37. A project manager is using the earned value reporting system to manage his project. At this point in time the EV is \$24,000, the BAC is \$97,000, the PV is \$29,000, and the AC is \$45,000. What is the percent complete?

38. The project manager of a project must buy a large piece of equipment costing \$1,543,256. He meets with the accounting department representative to the project team and reviews the different depreciation methods that can be used to depreciate the equipment over the useful life of the equipment. Which of the following is an accelerated depreciation method?

a. Multiplication of the years' digits b. Straight line c. Sum of the years' digits d. Average deflation

The following situation refers to questions 39, 40, and 41.

In a manufacturing facility that makes electronic widgets, the main widget making machine is getting old and a project is formed to consider the replacement of this machine. The average cost of the operations performed on this machine for making a widget is \$5.00 per unit. A new machine can be purchased for \$50,000 that will perform these operations much more quickly and with less scrap and rework for an average cost of \$3.00 per unit. An alternative machine is even faster than the first machine considered and will perform the same operations for \$2.00 per unit. However, this machine will cost \$75,000. The company manufactures 1,000 widgets each month.

39. What is the breakeven point for the \$75,000 machine compared to the existing machine?

a. 100,000 units b. Three years c. Five years d. 25,000 units

40. What is the breakeven point for the \$50,000 machine compared to the existing machine?

a. 100,000 units b. Three years c. Five years d. 25,000 units

41. If the production of widgets is expected to continue for at least three years, what is the preferred action?

a. Do not replace the machine.

b. Replace the existing machine with a new machine costing \$50,000.

c. Replace the existing machine with a new machine costing \$75,000.

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