A contractor's project has actual costs of $85,000 against a budget of $90,000 and is 75% complete. What is the projected final cost using the cost-to-complete method?
Correct Answer
A) $113,333
If 75% complete with $85,000 spent, the projected final cost is $85,000 ÷ 0.75 = $113,333. This indicates a potential cost overrun.
Why This Is the Correct Answer
The cost-to-complete method projects final cost by dividing actual costs spent by the percentage of work completed. With $85,000 spent at 75% completion, the calculation is $85,000 ÷ 0.75 = $113,333. This method assumes the remaining work will continue at the same cost efficiency rate as the work completed so far. The result shows a significant cost overrun from the original $90,000 budget.
Why the Other Options Are Wrong
Option B: $90,000
This amount is too low and doesn't reflect the actual spending rate. It appears to be an arbitrary adjustment to the original budget rather than a calculation based on actual performance.
Option D: $95,000
This is the original budget amount, not the projected final cost based on current spending patterns. Using the original budget ignores the actual cost performance data.
Memory Technique
Think 'Spent over Done' - divide what you've Spent by what percentage is Done to get your projected total cost
Reference Hint
Project Management chapter, specifically sections on cost control, earned value management, and project cost forecasting methods
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