Cost Analysis and Budgeting Flashcards
7 cards from real CPE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cost Analysis and Budgeting flashcards as text
An estimator is evaluating two alternatives using Net Present Value (NPV). Alternative A has an NPV of $125,000 and Alternative B has an NPV of $98,000. Which should be selected and why?
Answer: Alternative A, because it has the higher NPV
When comparing mutually exclusive alternatives, the option with the highest positive NPV creates the most value and should be selected.
A cost estimate is described as 'Class 3' under AACE International's classification system. What level of project definition does this typically correspond to?
Answer: 10–40% of full project definition
AACE Class 3 estimates correspond to 10–40% project definition, typically used for budget authorization or control purposes.
When performing a sensitivity analysis on a cost estimate, the estimator is primarily trying to identify:
Answer: Which input variables have the greatest influence on the total estimated cost
Sensitivity analysis systematically varies input assumptions to determine which variables most significantly affect the output, highlighting areas needing the most estimating rigor.
A cost estimator encounters a 'learning curve' effect on a repetitive manufacturing task. What does this effect predict?
Answer: Unit labor hours will decrease by a fixed percentage each time cumulative production doubles
The learning curve (or experience curve) predicts that direct labor hours per unit decrease by a consistent percentage each time cumulative output doubles.
Which of the following is an example of an 'opportunity cost' in project budgeting?
Answer: The revenue foregone by not investing capital in the next-best alternative
Opportunity cost represents the value of the best alternative forgone when choosing to invest resources in a particular project.
A project's budget baseline differs from the project budget primarily because the baseline:
Answer: Excludes management reserve and represents the time-phased spending plan used for performance measurement
The cost baseline is the time-phased authorized budget excluding management reserve, used as the benchmark against which actual performance is measured.
During a project budget review, the team identifies a variance caused by 'gold plating.' This term refers to:
Answer: Adding features or quality beyond what the scope requires, increasing costs without owner-approved value
Gold plating occurs when the project team adds unauthorized enhancements beyond scope, consuming budget without delivering approved value to the owner.