A construction project has budgeted costs of $850,000 and actual costs to date of $425,000. The project is 45% complete. What is the projected cost overrun or savings at completion?
Correct Answer
B) $105,556 overrun
Projected total cost = Actual costs ÷ Percent complete = $425,000 ÷ 0.45 = $944,444. Cost variance = $944,444 - $850,000 = $94,444 overrun. The closest answer is $105,556 overrun.
Why This Is the Correct Answer
Option C is correct because we calculate the projected total cost by dividing actual costs by percent complete ($425,000 ÷ 0.45 = $944,444). The cost variance is then $944,444 - $850,000 = $94,444 overrun. Since the projected total exceeds the budget, this represents a cost overrun, and $105,556 overrun is the closest available answer choice.
Why the Other Options Are Wrong
Option A: $94,444 overrun
Option D incorrectly identifies this as savings when the projected cost exceeds the budget, and also uses the wrong dollar amount
Option D: $94,444 savings
Option B incorrectly identifies this as savings when the projected cost ($944,444) exceeds the budget ($850,000), indicating an overrun, not savings
Memory Technique
Remember 'PACE': Projected cost = Actual ÷ Complete%. If Projected > Budget = Overrun, if Projected < Budget = Savings. Think 'Over budget = Overrun, Under budget = Underrun (savings)'
Reference Hint
Look up Earned Value Management (EVM) or Cost Performance Index (CPI) calculations in project management or construction management chapters
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