Project Management: Achieving Competitive Advantage, 5th Edition Test Bank: Chapter 8

Project Management: Achieving Competitive Advantage, 5e (Pinto)
Chapter 8 Cost Estimation and Budgeting

1) Which of the following is a direct cost?
A) Labor
B) Rent
C) Depreciation on equipment
D) Health benefits
Answer: A
Diff: 1
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Concept
AACSB: Application of Knowledge

2) Which worker's wages would constitute a direct cost for a construction project?
A) The project's cost accountant
B) The brick mason
C) The architect's assistant
D) The foreman
Answer: B
Diff: 1
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Application of Knowledge

3) Direct costs are those clearly assigned to the aspect of the project that generated the cost.
Answer: TRUE
Diff: 1
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Concept
AACSB: Application of Knowledge

,4) What are four major categories of costs? Provide descriptions for each category.
Answer: Some of the more common project costs include labor, materials, subcontractors,
equipment and facilities, and travel. Labor costs are those associated with hiring and paying the
various personnel involved in developing the project. Material costs apply to the specific
equipment and supplies the project team will require in order to complete the project tasks.
Subcontractors may provide resources (and in the case of consultants, expertise) for the project,
their costs must be factored into the preliminary cost estimate and be reflected in the budget.
Firms commonly include rental of equipment and facilities as a charge against the cost of the
project when the project is developed away from the firm's home office. If necessary, expenses
that are related to business travel can be applied to the project as an up-front charge.
Diff: 2
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Application of Knowledge

5) The gentleman farmer and surrealist aficionado commissioned a mural on barn that was an
homage to Salvador Dalí's Persistence of Memory with a few farm animals included. The project
would require the services of a senior muralist, a junior muralist, and a gofer. The senior muralist
has an annual salary of $120,000, the junior muralist draws an annual salary of $75,000, and the
gofer makes $30,000 per year. It is anticipated that the project will require 25 hours of senior
muralist time, 40 hours of junior muralist time, and 60 hours of gofer time. Overhead charges
vary by position; the gofer has a lower overhead rate (30%) than the two muralist positions
(50%). Use 2080 hours as an estimate for the number of hours in a year and a 15% factor for
personal time. What is the total direct labor cost for the project?
Answer: The table displays the sequence of calculations; the total direct labor cost is $6,269.71

Annual Hourly Hours Direct
Salary Rate Needed Overhead Personal Labor
$120,000.00 $57.69 25 1.5 1.15 $2,487.98
$75,000.00 $36.06 40 1.5 1.15 $2,487.98
$30,000.00 $14.42 60 1.3 1.15 $1,293.75
Total $6,269.71

Diff: 2
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Application of Knowledge

,6) Three workers complete a full 8-hour day finishing concrete for a terrace. All three workers
are paid $12 an hour and the job bills to the customer for $450. What are the total direct labor
costs?
A) $450
B) $12
C) $288
D) $96
Answer: C
Diff: 1
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Analytical Thinking

7) Which of these indirect costs is typically classified as an overhead cost?
A) Advertising
B) Shipping
C) Sales commissions
D) Taxes
Answer: D
Diff: 2
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Application of Knowledge

8) Which of these indirect costs is typically classified as a selling or administrative cost?
A) Secretarial support
B) Utilities
C) Insurance
D) Depreciation
Answer: A
Diff: 2
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Application of Knowledge

, 9) A systems analyst is paid at the rate of $50/hour and will be needed for 40 hours. Her
employer uses an overhead multiplier of 60% and does not factor in personal time. Her total
direct labor cost should be billed at:
A) $2,000.
B) $3,200.
C) $1,250.
D) $4,500.
Answer: B
Diff: 2
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Analytical Thinking

10) Workers paid $15.00 per hour with an overhead charge of 1.45 and a personal time allowance
of 1.15, have what total direct labor cost for an 8-hour work day?
A) $151.30
B) $174.00
C) $200.10
D) $236.80
Answer: C
Diff: 2
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Analytical Thinking

11) Which of these is typically a recurring cost?
A) Preliminary market analysis
B) Personnel training
C) Outplacement services
D) Logistics
Answer: D
Diff: 2
Section: 8.1 Cost Management
LO: 8.1: Understand the various types of common project costs and key differences between
them.
Classification: Application
AACSB: Application of Knowledge