A general contractor discovers that actual job costs are running 15% over budget on a $2.8 million project that is 60% complete. If the trend continues, what will be the total cost overrun at project completion?
Correct Answer
C) $420,000
If costs are 15% over budget for the entire project: $2,800,000 × 15% = $420,000 total overrun. The percentage complete doesn't change the total projected overrun if the trend continues.
Why This Is the Correct Answer
If costs are running 15% over budget and this trend continues for the entire project, the total overrun at completion is simply 15% of the total project budget: $2,800,000 × 15% = $420,000. The 60% completion figure is provided as a distractor — if the 15% overrun trend applies to the whole project, the percentage complete does not change the total projected overrun.
Why the Other Options Are Wrong
Option A: $700,000
$700,000 represents 25% of $2,800,000, which has no basis in the given data. This may result from incorrectly applying a combined overhead and profit factor rather than using the stated 15% overrun rate.
Option B: $168,000
$168,000 results from calculating 15% of only the costs incurred so far (60% of $2,800,000 = $1,680,000 × 10% = $168,000), which misunderstands the question. The question asks for the total overrun at project completion if the trend continues, not the current dollar overrun to date.
Option D: $252,000
$252,000 is 15% of $1,680,000 (the 60% already spent), representing only the overrun on work completed so far — not the projected total overrun at completion. This ignores the remaining 40% of the project where the same trend is expected to continue.
Memory Technique
For 'if the trend continues' cost overrun questions, apply the overrun percentage to the TOTAL project budget — not just the work done so far. Think of it as: trend × total = total overrun. The percentage complete is only a distractor when the trend applies to the whole job.
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