CCT Cost Estimation & Budgeting 3 — Questions and Answers
Question 1: In a three-point estimate, if the optimistic estimate is $80,000, pessimistic is $140,000, and most likely is $100,000, what is the PERT weighted average?
- $101,667 (Correct answer)
- $106,667
- $100,000
- $110,000
Correct answer: $101,667
PERT = (O + 4M + P) / 6 = ($80,000 + 4×$100,000 + $140,000) / 6 = $610,000 / 6 = $101,667.
Question 2: Which type of cost is directly traceable to a specific cost object such as a product or project?
- Direct cost (Correct answer)
- Indirect cost
- Overhead cost
- Allocated cost
Correct answer: Direct cost
Direct costs are those that can be specifically identified with and traced to a particular cost object without allocation.
Question 3: What does the term 'cost normalization' refer to in cost estimating?
- Adjusting historical costs to a common time period using indices (Correct answer)
- Removing outliers from a cost database
- Converting costs from one currency to another
- Standardizing the work breakdown structure
Correct answer: Adjusting historical costs to a common time period using indices
Cost normalization adjusts historical cost data to a common base year using escalation indices to enable valid comparisons.
Question 4: A project budget shows $300,000 for materials, $150,000 for labor, and $50,000 for equipment. If overhead is applied at 25% of direct labor, what is the total project budget?
- $537,500 (Correct answer)
- $562,500
- $500,000
- $550,000
Correct answer: $537,500
Overhead = 25% × $150,000 = $37,500; Total = $300,000 + $150,000 + $50,000 + $37,500 = $537,500.
Question 5: Which scheduling technique creates a time-phased budget by spreading cost estimates across the project schedule?
- Resource loading
- Cost loading (Correct answer)
- Critical path method
- Earned value baselining
Correct answer: Cost loading
Cost loading distributes estimated costs across the project schedule to create a time-phased expenditure plan.
Question 6: What is the key distinction between a budget and a forecast in project cost management?
- A budget is the approved plan; a forecast predicts future cost performance (Correct answer)
- A budget is updated monthly; a forecast is fixed at project start
- A budget includes contingency; a forecast excludes it
- A budget is set by the client; a forecast is set by the contractor
Correct answer: A budget is the approved plan; a forecast predicts future cost performance
The budget represents the approved cost baseline, while a forecast is a prediction of the final cost based on current performance data.
Question 7: In capital cost estimating for process plants, what does the 'battery limits' boundary define?
- The physical boundary of the process unit excluding offsite facilities (Correct answer)
- The maximum cost threshold for major equipment
- The limit of owner-furnished materials
- The contractor's scope of work limit
Correct answer: The physical boundary of the process unit excluding offsite facilities
Battery limits define the geographic boundary of a process unit, separating inside battery limit (ISBL) costs from outside battery limit (OSBL) costs.
CCT Cost Estimation & Budgeting 3
In a three-point estimate, if the optimistic estimate is $80,000, pessimistic is $140,000, and most likely is $100,000, what is the PERT weighted average?