Study Guide Cost Practice Exam

Activity A is worth $200, is 100% complete, should have been done on day one, and actually cost $200. Activity B is worth $75, is 90% complete, should have been done on day two, and actually cost $120 so far. Activity C is worth $200, is 75% complete and should have been done on day three, and has cost $175 so far. The total budget is $1,000. What is the planned value as of day two?

Select one:

a. $495.00

b. -$275.00

c. -$417.50

d. $275.00 

Feedback

The planned value as of day two is $275.00  Obtain this value by adding the planned value (PV) of Activity A ($200) and B ($75), which should have been done as of day two on the project. [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: $275.00

Question 2

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Company-wide server upgrades are an example of what type of project cost?

Select one:

a. Variable indirect 

b. Variable

c. Fixed

d. Fixed direct

Feedback

This type of cost typically increases for every server and is not likely associated with a specific project. Therefore, variable indirect is the best description. Variable is not the best answer. Fixed and fixed direct cost descriptions don’t fit this type of cost except in one instance: If the question had limited the server upgrades to a fixed license fee for a web server used in a web project, the answer would have been (C) Fixed. [Crosswind Manual 7.1; No PMBOK® Guide Reference]

The correct answer is: Variable indirect

Question 3

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Project A has an NPV of $150K over three years. Project B has an NPV of $330K over six years. Project C has an NPV of $170K over six years. Which of the following do you select?

Select one:

a. Project A and C

b. Project A

c. Project C

d. Project B 

Feedback

Project B is the most attractive project because it has the highest dollar amount. The years listed with the NPV are distracters because they are already factored into the dollar amount of the project. Project A and C are of less value than Project B. [Crosswind Manual 7.2; No PMBOK® Guide Reference]

The correct answer is: Project B

Question 4

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Project A has an NPV of $275K over 2.5 years. Project B has an IRR of 3.2%. Project C has a BCR of 0.89:1. Project D has four people on it and is encountering scope creep. Which of the following projects stand the greatest chance of getting canceled?

Select one:

a. Project D

b. Project A

c. Project C 

d. Project B

Feedback

Project C has a negative BCR because it is creating less revenue than the cost.  Project A and B have positive financials. Project D appears to have some issues, but we don’t know enough about it to determine anything else. [Crosswind Manual 7.2; No PMBOK® Guide Reference]

The correct answer is: Project C

Question 5

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The BCR project comparison function utilizes what variable(s)?

Select one:

a. Revenue and cost 

b. Benefit and profit

c. Revenue and profit

d. Profit margin

Feedback

The BCR is the benefit cost ratio. It considers the benefit (or revenue) and cost of an initiative. It doesn’t factor in profit or profit margin. [Crosswind Manual 7.2; No PMBOK® Guide Reference]

The correct answer is: Revenue and cost

Question 6

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The highway project is in the middle of planning when the project manager presents a status reporting method to the team. The team members haven’t heard of this method before. It’s called earned value. To attain buy-in from the team, the project manager begins to explain what earned value status reporting can do for the project, explaining that it will measure which of the following?

Select one:

a. Scope, schedule, and cost 

b. Scope and cost

c. Scope and schedule

d. Schedule and cost

Feedback

Earned value deals with scope, schedule, and cost. Actual cost (AC) shows cost. Planned value (PV) shows time. Earned value (EV) shows scope. The formulas that work with these three variables show how the three are interacting together. [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: Scope, schedule, and cost

Question 7

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The infrastructure project is behind schedule and over budget. So far, $3M has been spent on the project. The sponsor is considering if it should allow the project to continue. What should he consider the $3M that has been spent so far?

Select one:

a. The amount for phase one

b. The budgeted cost of work performed

c. Opportunity cost

d. Sunk cost 

Feedback

Sunk cost is one that has already been spent on the project. It shouldn’t be taken into consideration when determining whether to continue on the project. There is nothing in the situation about phasing the project. The budgeted cost of work performed is the earned value (EV). Opportunity cost doesn’t apply here. [Crosswind Manual 7.5; No PMBOK® Guide Reference]

The correct answer is: Sunk cost

Question 8

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The planning process group is progressing. The team has involved a number of expert opinions in trying to approximate the costs needed to complete project activities. This process is known as?

Select one:

a. Determine budget

b. Estimate costs 

c. Analogous estimating

d. Control costs

Feedback

Estimate Costs obtains an approximation of the resource costs for activities or work packages. Determine Budget sums the costs to the individual work packages or activities to establish an authorized cost baseline. Control Costs manages the cost of the project. Analogous estimating is a distracter.  [Crosswind Manual 7.11; PMBOK® Guide 7.2]

The correct answer is: Estimate costs

Question 9

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The project is using a new server that cost $25,000. The project manager is told to set up depreciation for the server over a five-year schedule, with the server having a value of $0 at the end of five years. Standard depreciation will be used in the calculation. What is the amount per year the server will depreciate?

Select one:

a. $2,500

b. Not enough information

c. $5,000 

d. $10,000

Feedback

To calculate this value, determine a few values first. What is the value of the asset at the end of the schedule? What is the amount of the asset to begin with? What is the number of years of the depreciation schedule?  First, subtract the ending value of the asset from the beginning value of the asset ($25K – $0 = $25K). The $25K is then divided by the years (5) of the depreciation schedule. This calculation results in $5K per year of depreciation. [Crosswind Manual 7.6.1; No PMBOK® Guide Reference]

The correct answer is: $5,000

Question 10

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The project is using some application and database servers in the development environment. The finance department explains that the servers will be depreciated using the double declining balance (DDB) format. This is an example of what?

Select one:

a. Fixed direct cost

b. Accelerated depreciation 

c. Fixed cost

d. Standard depreciation

Feedback

Double declining balance and sum of the digits are both examples of accelerated depreciation. DDB is not standard depreciation. The other answers are distracters. [Crosswind Manual 7.6.2; No PMBOK® Guide Reference]

The correct answer is: Accelerated depreciation

Question 11

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The project management team has performed earned value analysis on its project and discovered that the project is behind schedule and over budget. The SPI is 0.82 and the CPI is 0.73. The team is trying to determine how efficient it needs to be with the remaining resources to complete the project on budget. Which of the following is the team trying to calculate?

Select one:

a. To-complete performance index 

b. Estimate to complete

c. Cost performance index

d. Cost variance

Feedback

The to-complete performance index (TCPI) shows the efficiency needed of the remaining resources to come in on budget.  Cost variance (CV) shows the difference between work done and what was paid for it. Cost performance index (CPI) shows the ratio between the work done and what was paid for it. The estimate to complete (ETC) shows the amount remaining to be spent based on the current spending efficiency (CPI). [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: To-complete performance index

Question 12

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The project planning process group is progressing. The team has involved the accounting department to set up a system of codes that the accounting department will use to track work on the project. This is known as what?

Select one:

a. Chart of accounts 

b. WBS numbering

c. Accounting codes

d. Determine budget

Feedback

The chart of accounts sets up codes that will be used to track project cost. The other answers are distracters. [Crosswind Manual 7.13.1; No PMBOK® Guide Reference]

The correct answer is: Chart of accounts

Question 13

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The project team is developing rules for reporting updates on the project. The majority of the activities are greater than two reporting periods long. Which format is best to use in this case?

Select one:

a. Forecast reporting

b. Fixed formula progress reporting

c. Earned value

d. Weighted milestone 

Feedback

The weighted milestone approach is ideal when an activity is over two reporting periods in length. Fixed formula uses a partial credit approach such as 50/50 and is ideal when an activity is short, such as two or less reporting periods long. Earned value shows the status of the scope, schedule, and cost of the project. Forecast reporting focuses on what is getting ready to be done on the project.  [Crosswind Manual 7.9; PMBOK® Guide Glossary]

The correct answer is: Weighted milestone

Question 14

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The project team is developing rules for reporting updates on the project. The majority of their activities are less than two reporting periods long. Which format is best to use in this case?

Select one:

a. Weighted milestone

b. Earned value

c. Fixed formula progress reporting 

d. Forecast reporting

Feedback

Fixed formula uses a partial credit approach such as 50/50 and is ideal when an activity is short, such as two or less reporting periods long.  The weighted milestone approach is ideal when an activity is over two reporting periods in length. Earned value shows the status of the scope, time, and cost of the project. Forecast reporting focuses on what is getting ready to be done on the project. [Crosswind Manual 7.8; No PMBOK® Guide Reference]

The correct answer is: Fixed formula progress reporting

Question 15

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The project team is planning an upgrade to a client’s website and infrastructure. During planning, the team discovers the need for a data communications line to connect to the servers. What type of cost is this?

Select one:

a. Indirect fixed

b. Indirect

c. Variable

d. Direct 

Feedback

The data communication line is a direct cost. It is something purchased directly for the project. It is not an indirect or variable cost. [Crosswind Manual 7.1; No PMBOK® Guide Reference]

The correct answer is: Direct

Question 16

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The project team is planning an upgrade to a client’s website and infrastructure. During planning, the team members are confronted with the cost options for a data communications line to connect to the servers. They consider the cost of purchasing the communication line for the time they need to develop the project. After that, the customer takes over the purchase of the line. They are also considering a long-term commitment that the customer can make with the communication line provider, which provides a less costly solution over the use of the system. What type of analysis is the team considering?

Select one:

a. Fixed cost

b. Make-or-buy analysis

c. Life cycle costing 

d. Procurement planning

Feedback

Life cycle costing looks at the long-term cost of something, instead of simply what it costs to create it. This can increase project cost but in the long run save the owner of the system money. The other answers are distracters. [Crosswind Manual 7.7; No PMBOK® Guide Reference]

The correct answer is: Life cycle costing

Question 17

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What is the range of a rough order of magnitude (ROM) estimate?

Select one:

a. -25% to +75% 

b. -300% to +75%

c. -5% to +10%

d. -10% to +10%

Feedback

The range of a rough order of magnitude (ROM) estimate is -25% to +75%. The other answers are distracters. [Crosswind Manual 7.12; PMBOK® Guide 7.2]

The correct answer is: -25% to +75%

Question 18

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Which of the following is an example of fixed formula status reporting?

Select one:

a. PV multiplied by % complete

b. The project manager updating the status reports quantitatively

c. Getting status updates from the project team

d. 30%/70% rule 

Feedback

The 30%/70% rule is an example of fixed formula progress reporting. It means that when the activity starts, it is given a 30% complete status and will not receive the remaining 70% until it is fully complete. PV x percentage complete of each activity is the formula for earned value. The other answers are distracters. [Crosswind Manual 7.8; No PMBOK® Guide Reference]

The correct answer is: 30%/70% rule

Question 19

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Which of the following metrics tells you if you are ahead of schedule?

Select one:

a. Cost performance index (CPI)

b. Cost variance (CV)

c. Schedule performance index (SPI) 

d. Budget at completion (BAC)

Feedback

The schedule performance index (SPI) tells you if you are ahead of, on, or behind schedule. An index less than 1.0 means you are having schedule problems. An index of 1.0 means you are doing exactly as planned on the schedule. An index greater than 1.0 means you are progressing faster than planned. The cost performance index (CPI) shows the spending efficiency of the project. The budget at completion (BAC) is the overall budget estimate for the project. The cost variance (CV) shows the amount that the project is over or under budget. [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: Schedule performance index (SPI)

Question 20

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Which of the following shows the rate at which the project is progressing compared to what was planned?

Select one:

a. Schedule performance index 

b. Gantt chart

c. Schedule variance

d. Variance report

Feedback

The schedule performance index (SPI) shows the rate at which the schedule is progressing. The SPI is established by showing the ratio between work done, also known as earned value (EV) and work scheduled, also known as planned value (PV). The schedule variance (SV) is the difference between work done, also known as earned value (EV) and work scheduled, also known as planned value (PV). The Gantt chart shows the schedule of the project. A variance report shows the difference between two items being measured. [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: Schedule performance index

Question 21

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Which of the following shows the remaining amount to be spent on the project based on current spending efficiency?

Select one:

a. Estimate at completion

b. Estimate to complete 

c. Budget remaining

d. Cost variance

Feedback

Estimate to complete (ETC) shows the remaining amount to be spent on a project based on spending efficiency. This value is the difference between actual cost (AC) and estimate at completion (EAC). Estimate at completion (EAC) is a forecast of total project cost, based on spending efficiency. Cost variance (CV) is the difference between the amount of work done and what was paid for it.  Budget remaining is a distracter.  [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: Estimate to complete

Question 22

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Which process aggregates estimated costs from the individual work packages or activities to create a summary and detailed breakdown of project costs?

Select one:

a. Estimate costs

b. Earned value management

c. Determine budget 

d. Control costs

Feedback

Determine Budget applies costs from the individual work packages or activities to establish an authorized cost baseline. This could be at a summary or detailed level depending on the needs of the project at the time. Estimate Costs approximates the costs needed to complete project activities. Control Costs manages the cost of the project. Earned value management is a distracter. [Crosswind Manual 7.13; PMBOK® Guide 7.3]

The correct answer is: Determine budget

Question 23

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You are having a home theater room added to your house. The project should take five days and cost $1,500 per day to complete. After three days, the project is 30% complete and $5,000 has been spent. What is the CPI?

Select one:

a. 0.40

b. 0.50

c. 0.45 

d. 1.00

Feedback

The formula for calculating the CPI (cost performance index) is CPI = EV / AC. In this instance three steps are required. First, determine the BAC (budget at completion), which is the sum of all PV (planned value): $1,500 per day cost multiplied by five days equals a BAC of $7,500. Second, calculate the EV (earned value) by multiplying the BAC by the percentage complete: $7,500 BAC multiplied by 30% complete equals an EV of $2,250. Third, calculate the CPI by dividing the EV by the AC (actual cost):  $2,250 EV divided by $5,000 AC equals a CPI of 0.45.  Note that planned value is defined as the work that should have been completed to date or during a particular time period (in this case, through day five of the project since the percentage complete relates to the overall project.) [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: 0.45

Question 24

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You are having a home theater room added to your house. The project should take five days and cost $1,500 per day to complete. After three days, the project is 30% complete and $5,000 has been spent. What is the total value of the project?

Select one:

a. $2,250

b. $5,000

c. $10,000

d. $7,500 

Feedback

The total value of the project is the equivalent of the project budget or the BAC (budget at completion). To determine the BAC multiply the cost per day times the number of days the project is scheduled to take: $1,500 per day cost multiplied by five days equals a BAC of $7,500. [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: $7,500

Question 25

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You are having a home theater room added to your house. The project should take five days and cost $1,500 per day to complete. After three days, the project is 30% complete and $5,000 has been spent. What is the EV?

Select one:

a. $10,000

b. $7,500

c. $2,250 

d. $5,000

Feedback

The formula for calculating the EV (earned value) is EV equals percentage complete of each activity (or in this case the entire project) multiplied by BAC (budget at completion). In this instance, two steps are required. First, determine the BAC for the project: $1,500 per day cost multiplied by five days equals a BAC of $7,500.  Second, calculate the EV by multiplying the BAC by

the percentage complete: $7,500 BAC multiplied by 30% complete equals an EV of $2,250. Note that planned value is defined as the work that should have been completed to date or during a particular time period. In this case, the time period is defined as “through day five of the project,” since the percentage complete relates to the overall project. [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: $2,250

Question 26

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You are having a home theater room added to your house. The project should take five days and cost $1,500 per day to complete. After three days, the project is 30% complete and $5,000 has been spent. What is the amount of work that should have been done so far?

Select one:

a. $4,500 

b. $5,000

c. $7,500

d. $2,250

Feedback

To determine the PV (planned value) for the days already worked, multiply the cost per day by the number of days worked: $1,500 multiplied by three days equals $4,500. Note that planned value is defined as the work that should have been completed either to date or during a particular time period (in this case, to date through day three). [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: $4,500

Question 27

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You are having a home theater room added to your house. The project should take five days and cost $1,500 per day to complete. After three days, the project is 30% complete and $5,000 has been spent. What is the ETC?

Select one:

a. $5,000

b. $16,666.67

c. $0

d. $11,666.67 

Feedback

The formula for calculating the ETC (estimate to complete) is ETC = EAC – AC. In this instance five steps are required. First, determine the BAC (budget at completion) by multiplying the cost per day by the number of days it will take to complete the project: $1,500 x 5 = a BAC of $7,500. Second, calculate the EV (earned value) by multiplying the BAC by the percentage complete: $7,500 BAC x 30% complete = an EV of $2,250.  Third, calculate the CPI (cost performance index) by dividing the EV by the AC (actual cost): $2,250 EV divided by $5,000 AC = a CPI of .45. Fourth, calculate the EAC (estimate at completion) by dividing the BAC by the CPI: $7,500 / .45 = $16,666.67. Fifth, subtract the AC from the EAC:  $16,666.67 – $5,000 = $11,666.67.  [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: $11,666.67

Question 28

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You are having a home theater room added to your house. The project should take five days and cost $1,500 per day to complete. After three days, the project is 30% complete and $5,000 has been spent. What do you expect the project to cost at completion based on the current performance?

Select one:

a. $0

b. $16,666.67 

c. $11,666.67

d. $5,000

Feedback

The formula for calculating the EAC (estimate at completion) is EAC = BAC / CPI. In this instance four steps are required. First, determine the BAC (budget at completion) by multiplying the cost per day by the number of days it will take to complete the project: $1,500 x 5 = $7,500. Second, calculate the EV (earned value) by multiplying the BAC by the percentage complete:  $7,500 x 30% = $2,250. Third, calculate the CPI (cost performance index) by dividing the EV by the AC (actual cost): $2,250 / $5,000 AC = .45. Fourth, calculate the EAC by dividing the BAC by the CPI: $7,500 / .45 = $16,666.67.  [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: $16,666.67

Question 29

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You are having a home theater room added to your house. The project should take five days and cost $1,500 per day to complete. After three days, the project is 30% complete and $5,000 has been spent. What is the SPI?

Select one:

a. 0.50 

b. 0.45

c. 0.40

d. 1.00

Feedback

The formula for calculating the SPI (schedule performance index) is SPI = EV / PV.  In this instance three steps are required. First, determine the PV (planned value): $1,500 per day cost multiplied by three days equals a PV of $4,500. Second, calculate the EV (earned value) by multiplying the BAC (budget at completion), since the percentage complete refers to the entire project, by the percentage complete: $7,500 x 30% = $2,250. Third, calculate the SPI by dividing the EV by the PV: $2,250 / $4,500 = 0.5. Note that planned value is defined as the work that should have been completed to date or during a particular time period (in this case, through day three of the project). [Crosswind Manual 7.14.1; PMBOK® Guide 7.4.2.2]

The correct answer is: 0.50

Question 30

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You have $1,000 today and can earn 8%. In future years, how much money will this be worth?

Select one:

a. $883

b. Not enough information 

c. $1,202

d. $1,175

Feedback

To calculate future value (FV), you need to have a present value (PV), an interest rate, and the time period involved. Therefore, without a time period in the question there is not enough information to answer the question. [Crosswind Manual 7.3, 7.4; No PMBOK® Guide Reference]

The correct answer is: Not enough information