A job has budgeted costs of $280,000 and is 65% complete. Actual costs incurred to date are $195,000. What is the projected cost variance at completion?
Correct Answer
C) $20,000 over budget
Projected total cost = $195,000 ÷ 0.65 = $300,000. Cost variance = $300,000 - $280,000 = $20,000 over budget.
Why This Is the Correct Answer
To find projected cost variance at completion, first calculate the projected total cost by dividing actual costs by percent complete: $195,000 ÷ 0.65 = $300,000. Then compare this to the budgeted cost: $300,000 - $280,000 = $20,000 over budget. This method assumes the current cost performance trend will continue through project completion.
Why the Other Options Are Wrong
Option A: $15,000 under budget
This answer of $85,000 under budget is completely incorrect. It appears to subtract actual costs from budget ($280,000 - $195,000 = $85,000) without considering the completion percentage or projecting final costs.
Option B: $85,000 under budget
This answer incorrectly calculates the variance as $15,000. The error likely comes from miscalculating either the projected total cost or making an arithmetic mistake in the final variance calculation.
Option D: $15,000 over budget
This answer shows $15,000 under budget, which is both the wrong amount and wrong direction. The project is actually trending over budget, not under budget, based on current spending patterns.
Memory Technique
Remember 'Project to Complete': Actual costs ÷ Percent complete = Projected total cost. Then subtract original budget for variance.
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