CPE Cost Estimation & Budget Control 4 — Questions and Answers
Question 1: A project's EAC is calculated as AC + (BAC - EV). This formula assumes:
- Future work will continue at the current CPI
- The remaining work will be completed at the originally planned rate (Correct answer)
- The project will experience the same variance as to date
- Future performance will be worse than current CPI
Correct answer: The remaining work will be completed at the originally planned rate
EAC = AC + (BAC - EV) assumes all remaining work will be performed exactly as planned (at budget), ignoring past cost performance.
Question 2: Which cost component is typically NOT included in the project cost baseline?
- Direct labor costs
- Material costs
- Management reserve (Correct answer)
- Subcontractor costs
Correct answer: Management reserve
Management reserve is held outside the cost baseline for unknown unknowns and is not part of the time-phased budget.
Question 3: In a fixed-price contract, who bears the cost risk if actual project costs exceed the contract price?
- The buyer
- The seller (Correct answer)
- Both parties equally
- A third-party insurer
Correct answer: The seller
In a fixed-price contract, the seller assumes cost risk because they must deliver at the agreed price regardless of actual costs.
Question 4: What is life cycle costing in project management?
- Estimating only construction or development costs
- Considering total costs from inception through disposal when making decisions (Correct answer)
- Calculating the project's return on investment over its useful life
- Tracking cost variances across each project phase
Correct answer: Considering total costs from inception through disposal when making decisions
Life cycle costing evaluates all costs over a product or asset's entire life — from acquisition through operations and disposal — for informed decision-making.
Question 5: A project has a BAC of $200,000, EV of $80,000, and AC of $100,000. What is the Estimate to Complete (ETC) using the typical CPI-based EAC?
- $100,000
- $125,000
- $150,000 (Correct answer)
- $170,000
Correct answer: $150,000
CPI = 80/100 = 0.8; EAC = 200,000/0.8 = $250,000; ETC = EAC - AC = $250,000 - $100,000 = $150,000.
Question 6: Which type of cost is directly traceable to a specific project deliverable or work package?
- Indirect cost
- Overhead cost
- Direct cost (Correct answer)
- Sunk cost
Correct answer: Direct cost
Direct costs can be directly attributed to a specific project activity or deliverable, such as labor or materials specific to that work.
Question 7: Value Engineering (VE) is primarily used in cost management to:
- Track variances between planned and actual costs
- Identify ways to reduce costs while maintaining required functionality (Correct answer)
- Calculate the earned value of completed work
- Establish the project's cost performance baseline
Correct answer: Identify ways to reduce costs while maintaining required functionality
Value Engineering analyzes project functions to find the least-cost way to achieve required performance without sacrificing quality.
CPE Cost Estimation & Budget Control 4
A project's EAC is calculated as AC + (BAC - EV).
This formula assumes: