The SuperFlyer Corporation is developing a revolutionary flying disc. The new toy can fly straight over a great distance, which is exciting by itself. However, this disc will also return to the owner in response to their voice! Because this is an advance over anything that this company has done before, estimating the amount and cost of the hi-tech materials are difficult. The project manager recommends using a range estimating process to develop an estimate. The values below are submitted by the project team.
Current estimates for cost of material are as follows:
Optimistic cost of smart resin:$6.00per lb
Most likely cost of smart resin:$8.00per lb
Pessimistic cost of smart resin:$8.50per lb
Current estimates for total material requirements are as follows: Optimistic quantity:21 lb/ 100 units
Most likely quantity:24 lb/ 100 units
Pessimistic quantity:30 lb/ 100 units
(a) What is the expected price of the material per pound?
(b) What is the expected amount of material needed for 100 units? (c) What is the expected cost for 100 units using the Simple Method?
Student Answer:a) Expected price of the material per pound: 6+4(8)+8.5/6= $7.75 b) The expected amount of material needed for 100 units: 21+4(24)+30/6= 24.5 lb/ 100 units c) The expected cost for 100 units using the simple method: $7.75(100)= $775
2.Question :(TCO A) Single-project budgeting must fit into the overall budgeting process of the organization and the company as a whole. As a project manager for one of your company's projects, you have been asked to provide a brief description of the top-down approach to the budgeting process. Explain the three basic steps in the top-down budgeting approach by identifying the organizational level (Upper Management, Functional Management, and Project Management) and type of budget prepared at each step. For each type of budget, explain why it is used at its level.
Student Answer:Step1 : Upper Management : The type of budget prepared is strategic budget based on organizational goals, constraints, and policies. Step2: Functional Managers: The type of budget prepared is a Mid-range budget for each functional unit Step3: Project Managers: The type of budget prepared is detailed budgets for each project, including the cost of labor, material, capital equipment, subcontracting, overhead and contingencies.
3.Question :(TCO B) You have been requested to provide a contingency estimate for a project involving the manufacturing of a new television. You are provided with the following component and labor estimates, together with the type of estimate: DescriptionEstimated base costType of estimate
Plasma Screen$780.00Order of Magnitude
Controls$56.00Order of Magnitude
The target retail price for the new TV is $4,995.00. New products are targeted for 125% markup on introduction, so that price and cost reductions can be taken as required by competitive pressure and still keep the product profitable.
Your estimating department currently defines estimate accuracy as follows: Order of Magnitude-25%, +85%
(a) What cost budget do you recommend for the product?
(b) Will the project be approved?
(c) What would you recommend to reduce or eliminate any contingency from the budget?
Student Answer:a) Cost budget recommended for the product: OM= +85% Budget= +25% Definitive +10% 1.85($780+$56)+1.25($142)+1.1($87+$34)+$385 = $2185.7 b) $2185.7 at 125% markup (2.25*$2185.7) = $4917.825 The project will be approved because the marked-up retail price is bellow the retail target price c)We need to firm up estimates for order of magnitude and budget items, and revise estimates before project can proceed.
4.Question :(TCO A) We are now in week 3 and...