Job Costing and Controls Flashcards

A project manager reviewing a job cost report sees $750,000 in actual costs incurred to date. The report also shows a signed, open subcontract for $300,000 and an issued purchase order for $75,000 for materials not yet delivered. What is the total 'cost to date plus committed costs' for this project?

Answer: D) $1,125,000

Committed costs are financial obligations that a company has agreed to, even if the work has not been performed or an invoice received. In this scenario, the total is calculated by adding the actual costs incurred to the value of the open subcontract and the issued purchase order: $750,000 (Actual) + $300,000 (Subcontract) + $75,000 (PO) = $1,125,000.

In construction job costing, which of the following best defines 'labor burden'?

Answer: B) The indirect costs associated with employing labor, such as payroll taxes, workers' compensation insurance, and benefits.

Labor burden refers to the additional, indirect costs a company incurs to employ a worker beyond their base hourly wage or salary. These costs include the employer's share of FICA taxes, federal and state unemployment taxes (FUTA/SUTA), workers' compensation insurance premiums, health insurance, retirement plan contributions, and paid time off.

What is the primary purpose of a standardized chart of cost codes within a construction company?

Answer: C) To provide a consistent framework for tracking, reporting, and analyzing project costs across all jobs.

A standardized chart of cost codes creates a uniform system for categorizing all project-related expenses. This consistency allows for accurate job costing, meaningful comparison of performance between projects, and the creation of a historical cost database to improve future estimating and budgeting.

A fixed-price project has an original contract value of $2,000,000 and an original estimated cost of $1,600,000. The client approves a change order that adds $100,000 to the contract price. The estimated cost to perform this additional work is $70,000. What is the new total estimated gross profit on the project?

Answer: B) $430,000

To find the new gross profit, you must first calculate the revised contract value and the revised total estimated cost. The new contract value is $2,000,000 + $100,000 = $2,100,000. The new total estimated cost is $1,600,000 + $70,000 = $1,670,000. The new estimated gross profit is the difference: $2,100,000 - $1,670,000 = $430,000.

Which of the following internal controls is most effective in preventing the misallocation of material costs to the wrong job?

Answer: B) Implementing a system where delivery tickets must specify a valid job number upon arrival at the site and be matched to a coded purchase order before an invoice is paid.

This control creates multiple touchpoints (purchase order, delivery, and invoice payment) where the cost is directly tied to a specific job number. This system ensures materials are intended for, delivered to, and ultimately paid for by the correct project, minimizing the risk of misallocation either by error or fraud.

A project's job cost report shows the following: Total Estimated Cost = $5,000,000; Costs Incurred to Date = $2,000,000. The project manager's latest forecast indicates that the project is trending over budget and will require an additional $3,500,000 to complete. What is the project's new 'Estimated Cost at Completion' (EAC)?

Answer: C) $5,500,000

The Estimated Cost at Completion (EAC) is a forecast of the total cost of the project based on current performance and estimates. It is calculated by adding the actual costs incurred to date to the new Estimated Cost to Complete. In this case, EAC = $2,000,000 (Costs Incurred) + $3,500,000 (New Estimated Cost to Complete) = $5,500,000.