Cost Estimation and Budgeting

Chapter 8 Cost Estimation and Budgeting 8.1 True/False 1) Direct costs are those clearly assigned to the aspect of the project that generated the cost. Answer TRUE 2) Material is an example of a cost that is recurring, variable and direct. Answer TRUE 3) An expedited cost is one that does not vary with respect to their usage. Answer FALSE 4) An order of magnitude estimate is usually more accurate than a ballpark estimate. Answer FALSE 5) Comparative estimates are more accurate than definitive estimates when applied to the same project. Answer TRUE 6) A learning rate of 90 means that for every doubling of output, the time required by the activity falls by 10. Answer FALSE 7) There is a tendency for different departments or functions to compete for scarce resources in a zero-sum game when bottom-up budgeting is used to develop a project budget. Answer FALSE 8) Activity-based costing is based on the notion that projects consume activities and activities consume resources. Answer TRUE 9) A time-phased budget allocates costs across both project activities and the anticipated time in which the budget is to be expended. Answer TRUE 10) A budget contingency of 1 million on a 10 million project means that the project will be planned for a cost of 10 million, but the project organization receives an extra 1 million to guard against unforeseen cost overruns. Answer FALSE 8.2 Fill in the Blank 1) Employing an overhead multiplier is sometimes referred to as the __________ rate for direct labor costs. Answer fully-loaded 2) __________ costs might be those associated with charges applied once at the beginning or end of a project. Answer Nonrecurring 3) Unplanned costs incurred when steps are taken to speed up the projects completion are __________. Answer expedited costs 4) The unofficial rule of thumb for __________ estimates is to aim for an accuracy of plus or minus 30. Answer ballpark or order of magnitude 5)