PMP Practice Exam for Cost Management

Use the following information to answer questions one through four below

PV= $2,200

EV= $2,000

AC= $2,500

BAC= $10,000

1. Using earned value analysis, what is the schedule variance and status of the project described?

a)      -$200 and the project is behind schedule

b)      +$200 and the project is ahead of schedule

c)      -$300 and the project is ahead of schedule

d)      +$8,000 and the project is exactly on schedule

2. What is the CPI for this project and what does it tell us about cost performance thus far?

a)      .20; actual costs are exactly as planned

b)      .80; actual costs have exceeded planned costs

c)      .80; actual costs are less than planned costs

d)      1.25; actual costs have exceeded planned costs

3. What is the cost variance?

a)      +$300

b)      -$300

c)      +$500

d)      -$500

4. Assuming current variances are the typical performance, what is the ECA and what does it represent?

a)      $10,000; the original project budget

b)      $ 12,500; the original project budget

c)      $10,500; the revised estimate for total project cost (based on performance thus far)

d)      $12,500; the revised estimate for total project cost (based on performance thus far)

5. Life Cycle Cost (LCC) estimates consider:

a)      The total life cycle costs of the project (concept, planning, implementation, and closeout).

b)      The differential cost of owning and operating a system.

c)      The total cost of acquisition as well as operations and maintenance.

d)      The total project cost at the time of customer acceptance.

6. Accelerated depreciation allows a company to write capital expenses off their taxes more quickly. Which of the following is a recognized method of accelerated depreciation?

a)      straight line

b)      double declining balance

c)      rapid capital deduction

d)      accumulated cash analysis

7- You have completed one year on the troubled Yucky Mountain nuclear waste disposal project. Numerous concerns have surfaced about the project and you have been directed to perform analysis and recommend either terminating or coniinuing the project' The $2.5 million already spent is referred to by finance experts as -- and expeds contend that these costs should considered in making the decision to continue the project or not.

a)      sunk costs; not be

b)      allocated costs; not be

c)      direct costs; be

d)      amortized costs; be

8. The cost of investing in a particular project and therefore giving up the potential benefits of other projects is known as:

a)      Variable cost.

b)      Fixed cost.

c)      Opportunity cost.

d)      Indirect cost.

9. Which of the following estimates would most closely predict the actual cost of a project?

a)      Order of magnitude

b)      Budget

c)      Definitive

d)      Parametric

10. Which of the following is/are common tool(s) for developing parametric cost estimates?

a)      WBS

b)      regression analysis

c)      content analysis

d)      factor analysis

11. Your project is running behind schedule and you decide to crash the network to catch up. Which of the following rules should you follow?

a)      Begin noncritical tasks at their early start times.

b)      Use resource leveling to optimize the productivity of project resources.

c)      Crash the tasks that have the longest duration.

d)      Crash critical tasks whose cost of crashing is lowest.

12. Learning curve theory states that in repetitive production of many items:

a)      Production equipment that requires less operator training results in lower unit costs.

b)      Unit costs decrease as production rates increase.

c)      Unit costs decrease in a regular pattern as more unit are produced.

d)      Costs of training increase as the level of automation increases.

13. Which of the following is not an example of a direct cost?

a)      Salary of the project manager

b)      Subcontractor expenses

c)      Materials used by the project

d)      insurance

14. Your project budget was estimated at $2,000,000. The third monthly status report revealed that $500,000 worth of work was complete and that $750,000 had been spent. Your team believes that current variances will not be indicative of remaining performance. What is the EAC?

a)      $3,000,000

b)      $2,000,000

c)      $2,750,000

d)      $2,250,000

Using the following information, answer questions 1s and 16:

Variable costs = $100 per unit

Fixed costs = $2,500

15. What is the cost of producing 20 units?

a)      $4,500

b)      $2,600

c)      $2,500

d)      $2,000

16. What is the cost of producing 10 additional units?

a)      $25,000

b)      b. $2500

c)      $1000

d)      $600

17. As of the fourth month on the Acme project, cumulative planned expenditures were $100,000. Actual expenditures totaled $120, 000. How is the Acme project doing?

a)      The project is ahead of schedule

b)      The project is in trouble because of a cost overrun

c)      The information available is insufficient

d)      Project costs are within a normal range

18. Present value is the:

a)      after-tax value of working capital

b)      value today of future cash flows

c)      total budget as of today

d)      total budget as of today plus management reserve

19. Working capital is defined as:

a)      current assets less current liabilities

b)      funds reserved for bid and proposal costs

c)      funds set aside for unforeseen problems

d)      the sum of cost plus profit

20. Which of the following tools measures true economic profit by accounting for the cost of capital?

a)      payback period

b)      economic value added

c)      benefit cost ratio

d)      expected present value

21. Which of the following statements about management reserve is/are true?

i. Management reserve is intended to reduce the chance of a cost overrun

ii. Management reserve funds may be used to fund work not originally authorized for the project

iii. Management reserve funds may be used to fund unforeseen problems

a)      I and ii

b)      I and iii

c)      Ii and iii

d)      i, ii, and iii

22. According to the law of diminishing returns:

a)      short people are best suited to some kinds of work

b)      using fewer resources will result in greater profit

c)      using more resources will result in proportionately less and less output

d)      using more resources will result in the project taking less time

23. Which of the following is a cost reduction tool aimed at: a) analyzing a design, b) determining the necessary functions, and c) assessing how to provide those functions at the lowest cost without degrading performance or quality?

a)      Pareto diagram

b)      Kanban

c)      Configuration management

d)      Value analysis

24. Which of the following statements are true regarding benefit cost-ratios (BCR)?

I. A BCR greater than zero indicates a profitable project

ii. A BCR of 2.5 represents a gross payback of $2.50 for each dollar invested

iii. Benefit-cost ratio represents the average rate of return on the money invested in a project

a)      I

b)      ii

c)      iii

d)      ii and iii

25. Analysis of payback periods determines_________.

a)      which project will become profitable most quickly

b)      the future value of money invested today

c)      the ratio of discounted revenues over discounted costs

d)      the first time period in which a financial profit occurs

26. Also called control accounts, cost accounts are:

a)      the lowest level at which organizational responsibilities are assigned

b)      used to summarize project costs at level two

c)      used to identify and track management reserve

d)      usually about two weeks of effort

27. Which statement about bottom-up cost estimating is not true? The concept

a)      identifies cost estimates for WBS work packages

b)      aggregates work package estimates to yield a cost estimate for the entire project

c)      is an example of an order of magnitude estimate

d)      is considered a very accurate form of definitive estimating

28. IRR is a quantitative measure of a project's expected profitability and can be thought of as:

a)      after tax profit reported to the IRS

b)      the average rate of return for the project

c)      the estimate at completion minus the budget at completion

d)      the cost variance percentage

29. Given the following information on the XYZ project, what is the expected outcome? (Assume current variances are typical of future performance)

·         Original project budget was $400,000

·         The current BCWP is $200,000

·         The current BCWS is $180,000

·         The current ACWP is $250,000

a)      The project will finish with a positive cost variance

b)      The estimate to complete is about $100,000

c)      The project will finish with a cost overrun of $100,000

d)      There is insufficient information to evaluate the project

30. Your project's budget is $500,000. The planned value as of today's reporting period $300,000, the project is 50% complete and 60% of the budget has been spent. The earned value for the project is _______ and the project is _____.

a)      $300,000; behind schedule

b)      $300,000; on schedule

c)      $250,000; ahead of schedule

d)      $250,000; behind schedule

31. EAC is a Periodic evaluation of:

a)      value of work Performed

b)      cost of work completed

c)      what it will cost to finish the job

d)      estimated total cost at project completion

32. Analogous estimating:

a)      relies on actual historical costs

b)      is a form of bottom-up estimating

c)      is a form of top-down estimating

d)      is used most often during the implementation phase

33. A CPI of .75 indicates that:

a)      you have spent 75% of Your budget

b)      you have a cost under run

c)      you are over budget

d)      your marginal tax is 25%

34. You just completed estimating the cost of a project to renovate an elementary school and install a security and fire-alarm system that meets current city codes. The estimate is $100,000 but experience with data of this type leads you to believe that the actual costs could range anywhere from $90,000 to as much as $125,000. What kind of estimate have you created?

a)      order of magnitude estimate

b)      budget estimate

c)      definitive estimate

d)      three-point estimate

35. An order of magnitude estimate would normally be made during which project management phase?

a)      initiation

b)      planning

c)      execution

d)      closeout

36. You are in the second month of clinical trials on the development of a new drug which your company is planning to call "Awake". The target market is professional, long-haul drivers and college students who procrastinate on their work. You think things are going pretty well but are about to look at some earned value data to find out for sure. The data show that the CPI is 0.96 and actual costs are $50,000. Given these data, what is the earned value?

a)      $48,000

b)      $50,000

c)      $52,083

d)      there is not enough information to determine the earned value

37. The CPI on the awake project is 0.96 and you have calculated the EAC as $312,500. What was the original budget (BAC) for the project?

a)      $325,521

b)      $312,500

c)      $300,000

d)      there is not enough information to determine the budget at completion

38. You just assumed the PM role for a virtual team with members in six different geographical locations. The project is using earned value analysis and the data for the latest month showed the EV (BCWP) to be $126,000, the PV (BCWS) to be $120,500, the AC (ACWP) to be $130,000, the BAC to be $600,000, and the percent complete to be 0.21. What is the earned value at this point?

a)      $600,000

b)      $126,000

c)      $130,000

d)      $120,500

39. Which statement best explains the declining SPI in the graph shown below?

a)      The project starter late

b)      Insufficient resources are available to the project team

c)      Materials cost less than anticipated

d)      A portion of the work was outsourced

40. Most organizations prefer to avoid large changes in spending during any portion of a fiscal year. A technique for reducing such fluctuations is known as ______and is ________.

a)      Funding limit reconciliation; a tool of estimate costs

b)      Funding limit reconciliation; a tool of determine budget

c)      Reserve analysis; a tool of estimate costs

d)      Reserve analysis; a tool of determine budget