A project has actual costs of $180,000 and is 75% complete. The original budget was $220,000. Using the percentage of completion method, what is the projected final cost?
Correct Answer
B) $240,000
Projected final cost = Actual costs to date ÷ Percentage complete. $180,000 ÷ 0.75 = $240,000. This indicates the project will exceed the original budget by $20,000.
Why This Is the Correct Answer
The percentage of completion method calculates projected final cost by dividing actual costs to date by the percentage of work completed. With $180,000 spent at 75% completion, the formula gives us $180,000 ÷ 0.75 = $240,000. This projection indicates the project will exceed the original $220,000 budget by $20,000, which is a critical cost overrun that needs immediate attention.
Why the Other Options Are Wrong
Option A: $165,000
This amount would suggest the project is performing better than the original budget, but the calculation shows we're actually trending toward a cost overrun based on current spending rates.
Option D: $220,000
This represents the original budget amount, not the projected final cost based on current spending patterns. The original budget is irrelevant once we have actual performance data showing cost overruns.
Memory Technique
Think 'Actual ÷ Percent = Projected' - or remember 'APP' (Actual over Percent equals Projected). If you're 75% done but spent more than 75% of budget, you're headed for an overrun.
Reference Hint
Look up 'Project Cost Control' or 'Earned Value Management' sections in construction management chapters, typically found under project administration or cost estimating topics.
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