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

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

Project Cost Management

This is the last month for appearing in PMP Certification Exam before the exam changes occur in January 2021. Get the latest updates about PMP Exam dates here. This is part-4 in series of PMP Practice Exam Questions related to Project Cost Management for PMP Certification 6th Edition covering Project Cost Management related questions. In the previous part, we discussed PMP Exam questions related to Project Schedule Management.

Checkout our complete PMP Certification Dumps and Practice Tests covering all subject areas, having 5 Practice Tests of 200 question each.

PMP Practice Exam Questions List – Project Cost Management:

Here is the list of PMP Practice Exam Questions related to Project Cost 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. [PMBOK 6th edition, Page 245]

PMP Certification Dumps-Project Cost Management

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. [PMBOK 6th edition, Page 263]

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. [PMBOK 6th edition, Page 267]

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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. [PMBOK 6th edition, Page 472]

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. [PMBOK 6th edition, Page 244]

You can find more PMP Practice Exam Project Cost Management related questions for the PMP Certification here.

Stay in touch as we will be covering all other subject areas of PMP Exam 6th Edition.

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