Cost Estimation Questions and Answers

Answer: C

Published series such as a plant cost index record how prices of equipment, materials and labour have moved, and the ratio of the two index values scales the figure. Scaling for capacity is a separate operation with its own exponent.

Answer: D

Money will be spent over the years following the estimate, and prices will have moved by then, so the allowance is a forecast of that movement. It is distinct from contingency, which covers what the estimate got wrong rather than what the market does.

Answer: A

It is the allowance for the estimate being imperfect at its own date: quantities slightly out, conditions slightly worse, details not yet designed. Scope changes are handled by re-estimating rather than by drawing on contingency, though in practice they often are.

Answer: B

Piping, instrumentation, electrical work, structures, erection and engineering are all taken as multiples of the equipment they serve, the factor differing between solids, mixed and fluid processing plants. It is a budget-class technique needing only an equipment list.

Answer: C

Handling liquids and gases means pumps, pipes, valves, vessels and a great deal of measurement and control, all of which multiply the equipment cost. A solids plant carries proportionately more structure and less pipework.

Answer: D

An eighty per cent curve means the time per unit falls to eighty per cent of its previous value at each doubling of cumulative production. The effect comes from the workforce and the organisation learning, so it applies to repetitive manufacture rather than to one-off work.

Answer: A

It is a proportional reduction applied repeatedly, so the first unit's hundred hours become eighty at unit two, sixty-four at unit four and 51.2 at unit eight. A lower percentage means faster learning, which is the opposite of what the number suggests at first sight.

Answer: B

Correct answer: lower

The percentage is the fraction of the time that remains when output doubles, so a lower figure means a greater reduction each time. An 80 per cent curve learns faster than a 90 per cent one, and a 100 per cent curve is no learning at all - which is why the smaller number represents the steeper effect.

Answer: C

The improvement comes from people and methods getting better with practice, so a highly automated process has little scope for it. Aircraft and shipbuilding, where the same article is made many times by hand, are the classic settings.

Answer: D

Correct answer: direct expenses

Prime cost is everything traceable directly to the job: material, labour and any direct expense such as a special tool or a royalty per unit. Every kind of overhead is excluded by definition, since overheads are apportioned rather than traced.