A project has budgeted costs of $200,000 and is 60% complete with actual costs of $140,000. What is the cost variance?
Correct Answer
A) $20,000 unfavorable
At 60% completion, budgeted costs should be $120,000 ($200,000 × 0.60). Actual costs are $140,000, creating an unfavorable variance of $20,000.
Why This Is the Correct Answer
Cost variance is calculated by comparing the budgeted cost for work performed (BCWP) against the actual cost of work performed (ACWP). At 60% completion, the budgeted cost should be $120,000 ($200,000 × 0.60). Since actual costs are $140,000, the project is over budget by $20,000. When actual costs exceed budgeted costs, this creates an unfavorable variance.
Why the Other Options Are Wrong
Option B: $80,000 favorable
This calculates the wrong variance amount - it appears to subtract the budgeted amount from actual costs incorrectly ($200,000 - $140,000 = $60,000)
Option C: $60,000 unfavorable
This shows both the wrong amount and wrong direction - actual costs exceed budget so it cannot be favorable, and the $80,000 figure has no basis in the calculation
Memory Technique
Remember 'AUF': Actual costs Under budget = Favorable, Actual costs Above budget = Unfavorable. Always multiply total budget by completion percentage first.
Reference Hint
Project Management chapter or Cost Control section - look for Earned Value Management (EVM) formulas and cost variance calculations
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