PMP – Cost Management – Question Exam – 1 - 30

QUESTION 1

Company ABC is evaluating three consulting companies to find a consultant to

perform professional services.

They request information on how the three consulting companies allocate

fringe benefits to their clients. What type of cost is Company ABC asking
about?

A. Variable

B. Fixed

C. Direct

D. Indirect

Answer: D

Explanation:

Fringe benefits are included in overhead and are part of indirect costs.

Source: PMP® Exam Prep Page: 233

QUESTION 2

A definitive estimate is:

A. A level of estimating that can be achieved without the team’s help.

B. Created during the initiating process group.

C. Within a range of -10 percent to +25 percent of actual.

D. The most expensive to create.

Answer: D

Explanation:

A great deal of work is needed to fine tune a project so that you can get a
definitive estimate.

Source: PMP® Exam Prep Page: 237

QUESTION 3

A rough order of magnitude estimate is made during which project

management process group?

A. Planning

B. Closing

C. Executing

D. Initiating

Answer: D

Explanation:

This estimate has a wide range. It is done during project initiating, when very
little is known about the project.

Source: PMP® Exam Prep Page: 237

QUESTION 4

How close to actual costs should a definitive budget estimate be?

A. -75 percent to +25 percent

B. +/- 10 percent

C. +10 percent to -25 percent

D. -5 percent to +10 percent

Answer: B

Explanation:

This question is designed to determine whether you understand that estimates

should be in a range and what the standard ranges are.

Source: PMP® Exam Prep Page: 237

QUESTION 5

All of the following are tools of the Determine Budget process EXCEPT:

A. Aggregation.

B. Reserve analysis.

C. Funding limit reconciliation.

D. Bottom-up estimating.

Answer: D

Explanation:

The only incorrect choice is choice D, as it is part of the Estimate Costs

process.

Source: PMBOK® Guide Page: 167

QUESTION 6

Who has the cost risk in a fixed price (FP) contract?

A. The team

B. The buyer

C. The seller

D. Management
Answer: C

Explanation:

If the costs are more than expected under a fixed price contract, the seller
must pay those costs. "Cost risk" refers to the person who will have to pay for
the added cost if costs escalate. Because the price is fixed, the seller will have
to pay any increased costs out of their profit. Naturally, this does not include
increased PRICE due to change orders. A fixed price contract and the PRICE
could be changed with change orders.

Source: PMP® Exam Prep Page: 429

QUESTION 7

A cost baseline is an output of which cost management process?

A. Estimate Activity Resources

B. Estimate Costs

C. Determine Budget

D. Control Costs

Answer: C

Explanation:

A cost baseline is an output of the Determine Budget process.

Source: PMP® Exam Prep Page: 237

QUESTION 8

You just completed a cost estimate on the project, and you’re assuming there
is a 15 percent chance you will exceed this estimate. You are:

A. Below the mean.

B. Above the mean.

C. Above the median.

D. Below the median.

Answer: B

Explanation:

With normal distribution, the mean indicates you have a 50 perent chance of
being over or under your estimate. Since you have only a 15 percent chance of
being over, you are above (or to the right of) the mean.

Source: PMP® Exam Prep Page: 237

QUESTION 9

Your cost forecast shows that you will have a cost overrun at the end of the
project. Which of the following should you do?

A. Eliminate risks in estimates and reestimate.

B. Meet with the sponsor to find out what work can be done sooner.

C. Cut quality.

D. Decrease scope.

Answer: A

Explanation:

Look for the choice which would have the least negative impact in this
situation. You would not need to meet with the sponsor to do choice B.
Choices C and D always have negative effects. The choice with the least
negative impact is choice A.

Source: PMP® Exam Prep Page: 206

QUESTION 10
A manufacturing project has a schedule performance index (SPI) of 0.89 and a
cost performance index (CPI) of 0.91. Generally, what is the BEST explanation
for why this occurred?

A. The scope was changed.

B. A supplier went out of business, and a new one needed to be found.

C. Additional equipment needed to be purchased.

D. A critical path activity took longer and needed more labor hours to
complete.

Answer: D

Explanation:

To answer this question, you must look for a choice that would take longer
and cost more. If you picked choice A, reread it. It says scope was changed,
not necessarily added to. If the change was to reduce the scope, it might also
have reduced cost. Though it would take time to handle the event described in
choice B, the impacted activity might not be on the critical path and thus
might not affect time. Choice C would definitely add cost but not necessarily
time. Only choice D would negatively affect both time and cost.

Source: PMP® Exam Prep Page: 241

QUESTION 11

The BEST description of costs that change with the amount of production is:

A. Variable costs.

B. Fixed costs.

C. Direct costs.

D. Sunk costs.

Answer: A

Explanation:
Variable costs (choice A) change with the amount produced so choice A is the
correct answer. Fixed costs (choice B) do not vary with the amount produced.
Direct costs (choice C) could be either fixed or variable and thus would not be
the best answer. Sunk costs (choice D) is money already spent.

Source: PMP® Exam Prep Page: 233

QUESTION 12

Project setup costs are an example of:

A. Variable costs.

B. Fixed costs.

C. Overhead costs.

D. Opportunity costs.

Answer: B

Explanation:

Setup costs do not change as production on the project changes. Therefore,

they are fixed costs.

Source: PMP® Exam Prep Page: 233

QUESTION 13

Recommended corrective actions result from which of the following?

A. Cost aggregation

B. Bottom-up estimating

C. Reserve analysis

D. Control Costs

Answer: D

Explanation:
Ask yourself in what part of the process corrective action is generally done. If
you have played Rita’s Process

Game in the book PMP® Exam Prep, you know it is the monitoring and
controlling process group. Now determine which choice involves control, and
you will select choice D.

Source: PMBOK® Guide Page: 187

QUESTION 14

All the following are components of cost management EXCEPT:

A. Vendor bid analysis.

B. Analogous estimating.

C. Earned value management.

D. Estimate Activity Resources.

Answer: D

Explanation:

Vendor bid analysis (choice A) and analogous estimating (choice B) are tools
for Estimate Costs. Earned value management (choice C) is a part of
performance measurement analysis in Control Costs. By the process of
elimination, Estimate Activity Resources is the correct response. It is part of
time management.

Source: PMBOK® Guide Page: 167

QUESTION 15

Monitoring cost expended to date in order to detect variances from the plan
occurs during:

A. The creation of the cost change control system.

B. Recommending corrective actions.

C. Updating the cost baseline.

D. Project performance reviews.

Answer: D

Explanation:

Recommending corrective actions (choice B) and possible updates to the cost

baseline (choice C) result from the activity described, they are not concurrent
with it. Monitoring costs are part of change control, but not part of creating
the change control system (choice A).

Source: PMBOK® Guide Page: 167

QUESTION 16

In which part of the cost management process is earned value (EV) used?

A. Performance measurement analysis and variance management

B. Forecasting and project performance reviews

C. Creating the cost baseline and the cost control system

D. Reserve analysis and cost aggregation

Answer: B

Explanation:

The key word here is “used.” Did you read it as “created,” and select choice A?
Choices C and D occur during project planning rather than project monitoring
and controlling, as described by the situation.

Source: PMP® Exam Prep Page: 240

QUESTION 17

An estimate at completion (EAC) is an output of which of the following?

A. Control Costs
B. Project performance review

C. Variance management

D. Performance measurement analysis

Answer: A

Explanation:

An estimate at completion is an output of the Control Costs process (choice

A). It can be used during all of the other choices.

Source: PMP® Exam Prep Page: 248

QUESTION 18

Halfway through the executing processes of your project, a team member

alerts you to a potential cost overrun for a specific deliverable. What do you
do FIRST?

A. Determine the projected actual cost.

B. Implement a change control process to track the change.

C. Inform the customer.

D. Determine the cause of the overage.

Answer: D

Explanation:

A project manager must always evaluate the situation before making a

decision.

Source: PMP® Exam Prep Page: 240

QUESTION 19

Which of the following BEST describes the meaning of the 50/50 rule?
A. Grant 50 percent progress on an activity when it begins and 50 percent
upon completion.

B. 50 percent of the work is done by 50 percent of the people on the project.

C. Identify 50 percent of risks before you start to develop responses.

D. The project is given credit for completing 50 percent of the work when it
starts.

Answer: A

Explanation:

This is a simplified way to track activity completion and, therefore earned

value, rather than asking for percent complete.

Source: PMP® Exam Prep Page: 240

QUESTION 20

A cost performance index (CPI) of 0.89 means:

A. At this time, we expect the total project to cost 89 percent more than
planned.

B. When the project is completed, we will have spent 89 percent more than
planned.

C. The project is only progressing at 89 percent of that planned.

D. The project is only getting 89 cents out of every dollar invested.

Answer: D

Explanation:

The CPI is less than one, so the situation is bad. Choice D is the best answer.

Source: PMP® Exam Prep Page: 241

QUESTION 21
What does estimate at completion (EAC) mean?

A. Each anticipated cost for the project

B. Estimated average cost at project completion

C. Anticipated total cost at project completion

D. Anticipated expenses at project completion

Answer: C

Explanation:

EAC means the total cost of the project at completion, based on current
information

Source: PMP® Exam Prep Page: 241

QUESTION 22

The BEST method to control costs is to:

A. Estimate at the beginning of the project and then check costs against the
baseline.

B. Estimate during the execution of the project and then manage each activity
to the budget.

C. Estimate during planning and then reestimate before each activity begins.

D. Estimate during the initiation of the project and have management confirm
the estimates.

Answer: A

Explanation:

This question focuses on how to control costs, not estimating. Choice B deals
with scope, choices C and D deal with estimating only.

Source: PMP® Exam Prep Page: 241

QUESTION 23

Which type of cost is team training?

A. Direct

B. NPV

C. Indirect

D. Fixed

Answer: A

Explanation:

You are training the team on skills required for the project. The cost is directly
related to the project and thus a direct cost.

Source: PMP® Exam Prep Page: 233

QUESTION 24

One common way to compute estimate at completion (EAC) is to take the

budget at completion (BAC) and:

A. Divide by SPI.

B. Multiply by SPI.

C. Multiply by CPI.

D. Divide by CPI.

Answer: D

Explanation:

This question is asking for the formula for EAC, which is BAC/CPI. Notice how
you will have to remember the formula to get the answer correct.

Source: PMP® Exam Prep Page: 242

QUESTION 25

If earned value (EV) is US $300,000, actual cost (AC) is US $350,000, and

planned value (PV) is US $375,000, what does the schedule performance index
(SPI) indicate?

A. You are only progressing at 86 percent of the rate originally planned.

B. You are progressing at 125 percent of the rate originally planned.

C. You are progressing at 116 percent of the rate originally planned.

D. You are only progressing at 80 percent of the rate originally planned.

Answer: D

Explanation:

Schedule performance index is computed by EV/PV = 300,000/375,000 = 0.8.

This means that you are progressing at a rate of 80 percent of what you
planned.

Source: PMP® Exam Prep Page: 241

QUESTION 26

A project team budgeted US $3,000 for the work performed and has spent US
$4,000, to date. If they budgeted US $5,000 for the work scheduled, what is
the cost variance (CV)?

A. ($1,000)

B. $2,000

C. $1,000

D. ($2,000)

Answer: A

Explanation:
A question like this is the reason you need to understand what each term
means in common terminology. EV is $3,000, AC is $4,000, so cost variance is
$3,000 – $4,000 = ($1,000).

Source: PMP® Exam Prep Page: 241

QUESTION 27

Value analysis is performed to get:

A. More value from the cost analysis.

B. Management to buy into the project.

C. The team to buy into the project

D. A less costly way of doing the same work.

Answer: D

Explanation:

Notice that you need to know the definition of value analysis to answer this
question. Also notice that the other choices could be considered correct by
someone who does not know the definition.

Source: PMP® Exam Prep Page: 232

QUESTION 28

Your company is undergoing a change in ownership and the new owners are
looking at the total cost of a new product. Which of the following would BEST
provide that information?

A. Estimate at completion

B. Life cycle cost

C. Earned value

D. Net present value

Answer: B

Explanation:

The life cycle cost will provide the picture of the total cost of the project. It
includes project costs and operations and maintenance costs.

Source: PMP® Exam Prep Page: 231

QUESTION 29

A project manager has run into cost difficulties. The project scope must be
completed, but at less cost. The project manager should:

A. Change the depreciation method for the equipment used on the project.

B. Perform a value analysis.

C. Evaluate benefit cost ratios.

D. Recover some sunk costs.

Answer: B

Explanation:

How can changing the depreciation (choice A) affect the total cost of the
project? A benefit cost ratio (choice C) is too vague to help eliminate specific
project costs. Sunk costs (choice D) are expended costs and can never be
recovered.

Source: PMP® Exam Prep Page: 232

QUESTION 30

A project manager wants to decrease costs on a project that a consultant is

completing for her company.
What costs should the project manager consider to accomplish this?

A. Variable and fixed

B. Variable and direct

C. Fixed and indirect

D. Direct and indirect

Answer: B

Explanation:

The variable and direct costs are most affected by the size and scope of the
project. Indirect costs are usually computed as a percentage of direct costs.

Source: PMP® Exam Prep Page: 233