CBC CBC Financial Management & Estimating 1 — Questions and Answers
Question 1: Which estimating method applies unit costs to each component of work based on material and labor quantities?
- Unit price estimating (Correct answer)
- Lump sum estimating
- Parametric estimating
- Assembly estimating
Correct answer: Unit price estimating
Unit price estimating calculates costs by multiplying measured quantities of each work item by a predetermined cost per unit.
Question 2: What does the term 'contingency' refer to in a construction budget?
- Profit margin added to the bid
- Reserved funds for unforeseen costs (Correct answer)
- The contractor's overhead allocation
- A penalty clause for delays
Correct answer: Reserved funds for unforeseen costs
A contingency is a budgeted reserve set aside to cover unexpected or uncertain costs that may arise during construction.
Question 3: A contractor's overhead includes which of the following?
- Direct material costs
- Subcontractor invoices
- Office rent and administrative salaries (Correct answer)
- Owner-supplied equipment
Correct answer: Office rent and administrative salaries
Overhead encompasses indirect business costs such as office rent, utilities, and administrative salaries that are not tied to a single project.
Question 4: What is a Schedule of Values (SOV) used for on a construction project?
- Tracking employee vacation schedules
- Breaking the contract sum into line items for progress billing (Correct answer)
- Listing subcontractor license numbers
- Documenting material delivery dates
Correct answer: Breaking the contract sum into line items for progress billing
A Schedule of Values allocates the total contract amount across work items so that progress payments can be calculated based on percentage of completion.
Question 5: Which type of bond guarantees that a contractor will complete a project according to the contract terms?
- Bid bond
- Payment bond
- Performance bond (Correct answer)
- License bond
Correct answer: Performance bond
A performance bond protects the owner by ensuring the contractor will fulfill all contractual obligations or the surety will complete the project.
Question 6: Cash flow management in construction primarily involves:
- Maximizing the number of change orders
- Timing receipts and disbursements to maintain sufficient liquidity (Correct answer)
- Hiring only salaried subcontractors
- Avoiding retention clauses in contracts
Correct answer: Timing receipts and disbursements to maintain sufficient liquidity
Effective cash flow management ensures that money coming in from progress payments aligns with money going out for labor, materials, and overhead.
CBC CBC Financial Management & Estimating 1
Which estimating method applies unit costs to each component of work based on material and labor quantities?