CRC Budgeting & Cost Estimation 3 — Questions and Answers
Question 1: A residential contractor discovers that lumber prices have risen 18% since the original estimate was submitted three months ago. This type of cost variance is best categorized as:
- Scope creep
- Escalation risk (Correct answer)
- Design contingency
- Productivity variance
Correct answer: Escalation risk
Escalation risk refers to price increases in materials or labor between the time an estimate is prepared and when work is performed.
Question 2: In a residential project schedule, the critical path method (CPM) most directly helps a contractor:
- Determine the lowest-cost subcontractor for each trade
- Identify activities that, if delayed, will extend the project completion date (Correct answer)
- Calculate the total overhead cost for the project
- Allocate contingency funds across project phases
Correct answer: Identify activities that, if delayed, will extend the project completion date
CPM identifies the sequence of tasks with zero float, meaning any delay on these tasks directly delays project completion.
Question 3: What is the primary purpose of a cash flow projection in residential construction?
- To set the final contract price with the owner
- To determine when funds will be needed and when revenue will be received throughout the project (Correct answer)
- To calculate the contractor's tax liability
- To establish the subcontractor payment schedule
Correct answer: To determine when funds will be needed and when revenue will be received throughout the project
A cash flow projection shows the timing of expenses and income, helping the contractor manage working capital needs.
Question 4: A contractor uses the 'RSMeans' cost data reference. This resource is primarily used to:
- File lien waivers in Florida
- Obtain national and regional unit cost benchmarks for materials and labor (Correct answer)
- Calculate permit fees for local jurisdictions
- Determine insurance premium rates
Correct answer: Obtain national and regional unit cost benchmarks for materials and labor
RSMeans provides unit cost data adjusted by geographic location factors for accurate budget benchmarking.
Question 5: During a residential remodel, the homeowner requests three scope additions after contract signing. The contractor should handle these through:
- Absorbing costs to maintain client relationship
- Formal written change orders that adjust the contract price and schedule (Correct answer)
- Verbal agreements documented in the project log only
- Separate invoices billed at project completion
Correct answer: Formal written change orders that adjust the contract price and schedule
Written change orders protect both parties by formally documenting scope changes, cost adjustments, and schedule impacts.
Question 6: What is 'front-loading' in a residential contractor's schedule of values?
- Scheduling the most difficult work at the start of the project
- Assigning higher values to early-completion line items to improve early cash flow (Correct answer)
- Purchasing all materials before work begins to lock in prices
- Completing foundation work before permits are approved
Correct answer: Assigning higher values to early-completion line items to improve early cash flow
Front-loading inflates early line item values so the contractor draws more money in initial pay applications.
Question 7: A residential contractor's bid includes a $12,000 allowance for flooring. This means:
- The contractor guarantees flooring will not exceed $12,000
- The owner has pre-selected specific flooring materials costing $12,000
- A placeholder amount is included pending owner's final material selection (Correct answer)
- The subcontractor is responsible for any cost above $12,000
Correct answer: A placeholder amount is included pending owner's final material selection
An allowance is a budget placeholder for items not yet fully specified, to be reconciled when selections are finalized.
CRC Budgeting & Cost Estimation 3
A residential contractor discovers that lumber prices have risen 18% since the original estimate was submitted three months ago.
This type of cost variance is best categorized as: