Cost Scheduling Basic

Posted: October 17th, 2013

Cost Scheduling Basic

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Cost Scheduling Basic

Alpha Machine Tool Project

a) Total negotiated target value of the contract is equal to the target fee plus the negotiated cost. Therefore, negotiated value = $300,000 + $2,500,000 = 2,800,000

b) Budgeted target value for contract-authorized work is $2,500,000 since negotiated cost is equal to all authorized work (Hansen, D. R., Mowen, M. M., & Guan, L, 2009).

c) The total budgetary amount allocated to the Alpha project is the original released BCWS $2,330,000

d) The total new/revised budgetary amount released to the Alpha Project by Acme is equal to $2,380,000. The contracted funds of 2.5M need not be released all at once in the budget. This is because the original 2.5M contracted for the authorized is more than the funding allocation of 2.33M

e) Acme had set aside a total of $170,000 as management reserve based on the original amount released for the budget.

f) The management reserve has been revised by an increase of $50,000. Revised BCWS is equal to ($2,380,000) and the original BCWS is equal to ($2,330,000) with the difference being $50,000. Subsystem C and Subsystem A are the level-2 WBS elements that make up the revised management reserve because their release amounts are lower than those of contracted amounts are (Riahi-Belkaoui, 2001).

g) Based on the BCWS completion costs, Acme can expect to make a profit of $170,000

h) & i) $324,000 should be considered the distributed budget amount for accomplishing the work indirectly associated with the product. Since the project amounted at $120,000 in terms of the budget, a bonus of 20% therefore occurs from the ratio of sharing concept.

Direct Labor

a) Acme scheduled 73,800 dollars worth of work for the month. This is a representation of the total BCWS.

b) $67,500 is the amount that was earned of the work scheduled for completion in that month.

c) Acme did less work than was planned by $6300. The schedule variance can be calculated as $67,500(BCWP) – $73,800(BCWS) = -$6300.

d) Acme incurred a cost of $78,300 this month since this is the total ACWP.

e) The difference in amount between the budgeted work and the actual cost of Acme is -$10,800. Cost variance is calculated by BCWP – ACWP= $67,500 – $78,300 = -$10,800

f)  Subsystem C and Subsystem A are the elements responsible for the schedule and cost variances in the month. Subsystem A bears significant schedule and cost overrun and subsystem B has significant variance in its schedule.

g) Acme experienced cost variance of 11.4% and -$53,100. CV (-$53,100) = $464,200 (BCWP) – $78,300 (ACWP). Percentage cost variance = $464,200 (BCWP) – $517,300 (ACWP)/ $464,200 (BCWP) x 100 = -11.4%

h) Acme has experienced a schedule variance of -5.28% and $23,300. Schedule variance is calculated as $464,200 (BCWP) – $440,900 (BCWS) = 23,300. Percentage schedule variance is calculated as $464,200 (BCWP) – $440,900 (BCWS) x 100 = -5.20%

i) The cost variance is getting worse. The cumulative cost variance amounts to -11.4% and has fallen to -16% this month.

j) The schedule variance is also getting worse

k) The schedule end date does not appear to be met because of its dwindling state.

l) The new estimated burdened cost that will be incurred at completion is $2,652,000

m) Acme can expect a profit of a loss of $272,000 from the new estimated cost after completion.

n) Acme would enjoy a profit of $50,000 if the burdened cost for the program were $3,150,000.

Reference

Hansen, D. R., Mowen, M. M., & Guan, L. (2009). Cost management: Accounting and control. Mason, Ohio: South-Western.

Riahi-Belkaoui, A. (2001). Advanced management accounting. Westport, CT: Quorum Books.