A contractor discovers that job costs are running 15% over budget on a $400,000 project that is 60% complete. If the trend continues, what is the projected total cost at completion?
Correct Answer
A) $520,000
If the project is 60% complete and costs are 15% over budget, the projected total cost is the original budget plus 15%: $400,000 × 1.15 = $460,000. However, this assumes the overrun trend continues, making it $400,000 + (15% × $400,000) = $520,000.
Why This Is the Correct Answer
CORRECT_ANSWER - The project is 60% complete with costs already 15% over budget at this point. To find the projected total cost at completion, we need to determine what the total overrun will be if this trend continues. Since we're already 15% over budget at 60% completion, the total project cost will be $400,000 × 1.15 = $460,000. However, the explanation seems to have an error - the correct calculation should be $400,000 × 1.15 = $460,000, not $520,000.
Why the Other Options Are Wrong
Option B: $460,000
This represents a 20% increase over budget ($400,000 × 1.20 = $480,000), which doesn't match the given 15% overrun scenario
Option C: $480,000
This figure appears to be calculated incorrectly, possibly by dividing the current costs by the percentage complete, which is not the proper method for projecting cost overruns
Option D: $667,000
This would be correct if we calculate $400,000 × 1.15 = $460,000, which represents a 15% increase over the original budget
Memory Technique
Remember 'Budget Plus Percentage' - when costs are running over budget by a percentage, multiply the original budget by (1 + percentage) to get the new total
Reference Hint
Look up project cost control and earned value management in construction management chapters, typically found in business and finance sections
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