CDFM - Certified Defense Financial Manager Cost and Economic Analysis Questions and Answers

Question 1

An economic analysis is being conducted for a major defense acquisition program.
A significant amount of money has already been spent on research and development in prior fiscal years.
According to DoD Instruction 7041.03, how should these prior expenditures be treated in the analysis of alternatives?

Accepted Answer

They should be treated as sunk costs and excluded from the comparison of alternatives.

Answer

They should be included as part of the initial investment cost for each alternative.

Answer

They should be amortized over the life cycle of the chosen alternative.

Answer

They should be subtracted from the total benefits of the preferred alternative.

Question 2

A program office is evaluating three potential modifications to an existing radar system. Each modification provides the same level of performance improvement. The primary goal is to select the most financially viable option. Which of the following analytical methods would be most appropriate for this decision?

Accepted Answer

Cost-Effectiveness Analysis (CEA)

Answer

Cost-Benefit Analysis (CBA)

Answer

Business Case Analysis (BCA)

Answer

Net Present Value (NPV) Analysis

Question 3

Which of the following best describes a 'variable cost' in the context of defense contracting?

Accepted Answer

A cost that changes in total in direct proportion to the number of units produced, such as raw materials.

Answer

A cost that remains constant regardless of the number of units produced, such as factory rent.

Answer

A cost that is incurred only once at the beginning of a project, such as initial tooling.

Answer

A cost that has already been incurred and cannot be recovered.

Question 4

A project manager is developing a cost estimate for a new software system. Historical data from a similar, recently completed project is available. The manager adjusts the historical cost data to account for differences in software complexity and size. Which cost estimating method is being used?

Accepted Answer

Analogy

Answer

Parametric

Answer

Engineering

Answer

Actual Costs

Question 5

Per DoD Instruction 7041.03, "Economic Analysis for Decision-making," an economic analysis is required for a wide variety of resource allocation decisions. Which of the following is an example of a situation explicitly requiring an economic analysis?

Accepted Answer

The decision to expand an existing program or project.

Answer

Routine administrative reprogramming of funds below a certain threshold.

Answer

Daily operational and personnel management decisions.

Answer

The selection of a source for a commercial off-the-shelf (COTS) product.

Question 6

A Cost-Benefit Analysis (CBA) has been prepared for a new military housing project. The analysis monetizes both the costs (construction, maintenance) and the benefits (reduced housing allowances, improved morale leading to higher retention). To compare costs and benefits that occur at different times, they must be adjusted to a common point in time. What is this process called?

Accepted Answer

Discounting

Answer

Inflation Adjustment

Answer

Cost Normalization

Answer

Benefit Realization