Cost Estimation Questions and Answers

Answer: A

Correct answer: 600 000

\[ 200{,}000 + 40{,}000 \times 10 = 600{,}000. \] The running costs are twice the purchase price over the life, which is why a machine chosen on first cost alone can be the more expensive by a wide margin. Discounting would reduce the figure, and the question sets that aside deliberately.

Answer: B

Each method needs a different amount of information, which is why they belong to different stages of a project. Attempting a definitive figure from a capacity ratio, or a screening figure from full drawings, wastes effort in one direction or accuracy in the other.

Answer: C

Correct answer: 1-Q, 2-P, 3-R

Three allowances for three different uncertainties. Escalation covers price movement between the estimate and the spending. Contingency covers what is not yet known within the scope as defined. And a change to the scope itself is not an allowance at all - it requires the estimate to be redone, which is why contingency should never be treated as a fund for scope growth.

Answer: D

Direct costs give the prime cost, factory overhead gives the works cost, administration gives the cost of production, and selling and distribution give the total cost. Adding the profit to that total yields the selling price.

Answer: A

Correct answer: 1 and 2 only are correct

Statements 1 and 2 are correct: a lower percentage means faster learning, and an exponent of 0.6 means cost rises more slowly than capacity. Statement 3 attributes escalation’s purpose to contingency - contingency covers uncertainty within the scope, and price movement over time is escalation.

Answer: B

Contingency acknowledges uncertainty rather than reducing it, so a larger allowance makes the estimate more likely to be sufficient without making it more accurate. The other three each replace an assumption with information.

Answer: C

Correct answer: priced quantities of concrete and steelwork

A Lang factor estimate multiplies the delivered cost of the major equipment by a factor characteristic of the plant type, which stands in for everything else - civils, piping, electrical, instrumentation, erection. Priced quantities belong to a detailed estimate, and needing them would defeat the purpose of the method.

Answer: D

A screening estimate exists to decide whether to investigate further, not to commit funds, and forty per cent of a large project is a great deal of money. Budget commitment calls for at least a preliminary-class estimate on a defined scope.

Answer: A

Set-up costs are driven by the number of runs rather than by labour hours, so a product with many short runs escapes its share and appears cheaper than it is. Activity-based costing exists precisely to correct this distortion.

Answer: B

Area grows as the square of a linear dimension and volume as the cube, so cost lags capacity, which is the physical basis of the six-tenths exponent. The exponent varies with the type of equipment but is generally below one.