Cost Estimating

Question 1

Define Cost Estimation

Answer 1

A judgment or opinion regarding the cost of an object, commodity, or service.

Question 2

Indirect costs that benefit multiple programs or contracts, and therefore cannot feasibly be charged directly to just one

Answer 2

overhead costs, also called burden

Question 3

Define Life Cycle Cost.

Answer 3

the total cost to the Government for a system over its entire life, from beginning to end, including Program Acquisition cost, Operating and Support cost, and disposal costs

Question 4

the relationship between the Life Cycle Cost Categories, as it pertains to the average cost of each category as it relates to the overall program cost for a typical program.

Answer 4

TMRR & EMD = 10% (R&D = 10%)

Production & Deployment / Operations & Support
Investment Cost = 15 - 30%
Operations & Support Cost = 50-70%
Disposal Costs

Question 5

Two primary purposes of the Life Cycle Cost Estimate

Answer 5

1. Serve as the cost input for decisions on whether to start, continue, modify, or terminate the development, production, and fielding of a system
2. Provide the basis for budget requests to Congress

Question 6

Three types of acquisition program cost estimates

Answer 6

Program Office Estimate (POE)
Component Cost Estimate (CCE)
Independent Cost Estimate (ICE)

Question 7

Purpose of the Cost Analysis Requirements Description (CARD).

Answer 7

• Is used to prepare for all MDAP or MAIS program milestone or decision review, per the DODI 5000.02.
• Is used to develop the Program Office Estimate (POE), Component Cost Estimate (CCE), and Independent Cost Estimate (ICE).
• Describes the specifications of the program and assumptions the program office used in preparing the POE.
• Is provided to other groups that perform cost estimates on the program.
• Helps ensure all groups are costing out the same “program.”

Question 8

Role of OSD Cost Assessment and Program Evaluation (CAPE)

Answer 8

CAPE prepares a separate and distinct cost estimate on MDAP / MAIS programs known as the Independent Cost Estimate (ICE)

Question 9

List the five basic methods used to develop cost estimates

Answer 9

Analogy, parametric, engineering, actual costs, expert opinion

Question 10

Analogy

Answer 10

Comparison of similar systems or components

Question 11

Parametric

Answer 11

Statistical analysis to develop cost/performance relationships

Question 12

Engineering

Answer 12

Detailed “Bottom-up” analysis of all materials, parts, and labor.

Question 13

Actual costs

Answer 13

Extrapolation based on identical, or nearly identical, existing systems

Question 14

Expert opinion

Answer 14

The Expert Opinion method, also called the Roundtable, Jury of Expert Opinion, or the Delphi Method, estimates the costs of various parts of a project based on responses from experts in the field.

Question 15

Identify the simplest cost estimating technique

Answer 15

Analogy

Question 16

the most accurate method

Answer 16

Actual costs

Question 17

Two software cost estimate methods

Answer 17

Top-down

Delphi (Expert Judgment Method)

Question 18

Define the Learning Curve Theory

Answer 18

The unit theory of the learning curve states that as the quantity of a product produced doubles, the recurring cost per unit decreases at a fixed rate or constant percentage. The best way to understand this theory is to look at the following example.

Question 19

Defines recurring costs as those costs that vary with the quantity being produced, such as labor and materials.

Answer 19

The Federal Acquisitions Regulation (FAR)

Question 20

For estimating direct manufacturing labor hours, contractors commonly accumulate …

Answer 20

historical realization factors for use in conjunction with labor standards

Question 21

The underlying hypothesis is that the direct manufacturing labor man-hours necessary to complete a unit of production will decrease by a constant percentage each time the production quantity is doubled

Answer 21

True

Question 22

The major factors affecting direct material costs are:

Answer 22

Escalation
Utilization Rate
Usage
Spoilage
Decrement

Question 23

a cost that cannot be easily and conveniently traced to the particular cost objective under consideration

Answer 23

Indirect cost

Question 24

Any management, financial, or other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole

Answer 24

G&A

Question 25

reflects the purchasing power of a dollar in a specific year

Answer 25

“constant” dollar