PMP Practice Exam Questions – Project Cost Management (Part 4)

This is part-4 in series of PMP Practice Exam Questions related to Project Cost Management for PMP Certification covering Project Cost Management related questions. In the previous part, we discussed PMP Exam questions related to Project Schedule Management.

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PMP Practice Exam Questions List – Project Cost Management:

Here is the list of PMP Practice Exam Questions related to Project Cost Management. If you’re looking to test your knowledge in Project Schedule Management, check out our comprehensive set of PMP Practice Exam Questions – Project Schedule Management.

Question 1:

What is the primary risk when including reserves, or contingency allowances, in your cost estimate?

Choose the correct option?

A) Cancelling your project
B) Understating the cost estimate
C) Overstating the cost estimate
D) Tracking the funds

Correct Answer: C

Check out the solution:

Contingency funds are used to handle cost uncertainty due to unforeseen events during project cost management. These funds are generally used for items that are likely to occur but are not certain to occur.

Question 2:

What does a Cost Performance Index (CPI) of more than 1.0 indicate?

A) The project is over budget.
B) The project is right on budget.
C) The project is under budget.
D) The project is ahead of schedule.

Correct Answer: C

Check out the solution:

The CPI is calculated as the earned value divided by the actual cost. An index of greater than one indicates that you have spent less than you forecasted to this point.

Question 3:

Your vice president asked you what the Estimate at Completion (EAC) will be for a small project you are working on. You were given a budget of $30,000, and to date you have spent $20,000 but only completed $10,000 worth of work. You are sure the future work will be accomplished at the planned rate. What is the EAC?

A) $40,000
B) $30,000
C) $60,000
D) $10,000

Correct Answer: A

Check out the solution:

If the future work will be accomplished at the planned rate, then the Estimate at Completion (EAC) will be AC+BAC-EV. Budget at Completion (BAC) is $30,000, Earned Value (EV) is $10,000, and Actual Cost (AC) is $20,000. Hence, the EAC is $40,000.

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Question 4:

You have recently joined an organization as the procurements manager. You have just received an invoice from a contractor. Some of the items from the invoice are as follows:

EV of work completed to date: $50,000.
AC of work completed to date: $40,000.
Total costs reimbursed by the buyer to date: $35,000.

If the contract between the buyer and the contractor is a CPIF contract, what is the total value payable to this contractor? (Assume that the contract allows for a 10 percent fee over net payable whenever CPI > 1).

A) $500
B) $5,500
C) $44,000
D) $55,000

Correct Answer: B

Check out the solution:

Since this is a CPIF (Cost plus incentive fee) contract, the fee is calculated as a percentage of the actual cost provided that the CPI is greater than 1. In this case, CPI is greater than one (i.e. CPI = 1.25) and hence 10% fee is applicable on the total cost reimbursable.

AC is $40k out of which $35k has already been reimbursed. Hence total cost-reimbursable is $5k. The total payable in this case is $5k x 1.1 = $5,500.

Question 5:

Smith is the project manager of a project cost management that is in an early phase. He needs to estimate costs but finds that he has a limited amount of detailed information about the project. Which of the following estimation techniques is least suited to his requirements?

A) Top-down Estimating
B) Bottom-up Estimating
C) Analogous Estimating
D) Budgetary Estimating

Correct Answer: B

Check out the solution:

Bottom-up estimating is a technique that can be applied only when there is a sufficient amount of detail available to the project manager.

Question 6:

The most recent analysis of Microcorp’s new fabrication facility renovation project shows a CPI value of less than 1.0. What does this indicate?

A) The cost has overrun estimates.
B) The cost has underrun estimates.
C) The project is running ahead of schedule.
D) The schedule has slipped

Correct Answer: A

Check out the solution:

A CPI value of less than 1.0 indicates a cost overrun of the estimates. A CPI value greater than 1.0 indicates a cost underrun of the estimates.

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Question 7:

In an underground highway construction project, the project stakeholders have suggested many changes to the project scope. You had already defined the cost baseline in your project, and you would like to revisit the baseline to see how these changes might affect the overall cost of the project. You start an impact analysis to determine the impact and inform the concerned stakeholders of all approved changes and the corresponding costs. You perform these activities in which process?

A) Control Scope
B) Monitor Risks
C) Control Costs
D) Monitor Communications

Correct Answer: C

Check out the solution:

The Control Costs process involves many activities, such as influencing the factors that change the cost baseline, managing the changes, and informing stakeholders of approved changes and corresponding costs. Since you are in the process of managing the cost changes and informing the stakeholders about them, you are in the Control Cost process. The Control Costs process involves many activities, such as influencing the factors that change the cost baseline, managing the changes, and informing stakeholders of approved changes and corresponding costs. Since you are in the process of managing the cost changes and informing the stakeholders about them, you are in the Control Cost process.

Question 8:

Jackie is the project manager of a large project. During the Determine Budget process, she identifies that contingency reserves need to be set up for unplanned but potentially necessary changes that could result from realized risks identified in the risk register. Which of the following is true about reserves?

A) Management Reserves are not a part of project cost baseline, but will be included in the total budget for the project
B) Contingency Reserves are not a part of project cost baseline, but will be included in the total budget for the project
C) Both the Management Reserves and the Contingency Reserves are part of project cost baseline, and they are also not included in the budget for the project
D) Both the Management Reserves and the Contingency Reserves a part of project cost baseline, but they are included in the total budget the project

Correct Answer: A

Check out the solution:

Management Reserves are not a part of the project cost baseline but will be included in the total budget for the project.