Question

Assume the following: You are a contractor and have just been awarded a Greenfield Project. A budget has been established to install 20,000ft of pipe at an estimated 15,000 man hours and an estimated billable cost of $700,000. The original schedule planned for 4,000ft of pipe to be installed per day by a 300-man crew working a 10-hour shift (anticipated). The job was scheduled to start in Monday and finish on Friday. On Monday 2,000ft of pipe was installed. On Tuesday 3,500 ft of pipe was installed and on Wednesday 1,000ft of pipe was installed. Actual cumulative man hours incurred to-date is 9,500 hrs. In addition, your crew has installed 1,200ft of pipe and has incurred 2,040 of man hours to-date working on Change Orders. Note: Assume that $200,000 has been billed to the client to-date.

e. What is the current schedule variance?

f. What is the current cost variance? How many man hours are left to be earned?

g. How many actual man hours will be incurred in order to earn the remaining man hours?

h. What is the current projected EAC (Estimate at Completion) in terms of man hours?

Answer 1

Please remember above question based on Project accounting + Standard costing basis . I have created step by step analysis to derive each and every number .

schedule Variance = Negative $ 45755 ( Negative mean Project is behind schedule -which is not sounds good )

Schedule variance is showing project is behind schedule and costs are over run , which is damaging Project Profitability

What is the current Schedule variance ( SV)
The job was scheduled to start Monday and finished on Friday
	Ft
Monday	2,000
Tuesday	3,500
Wed	1,000
Total	6,500
Addition - Crew has installed	1,200
Total completion till date	7,700
Contract to completed
$ 20,000+ $1200 ( Additional Installation)	21,200
% completion	36%
formula $( 7700/21200)
Schedule Variance ( SV)	Earned $ value - Planned $ value ( as per Formula - Standard costing)
Schedule Variance ( SV)	2,54,245	-	3,00,000	-45,755
Earned $ Value	% completion * Estimated Billable cost
Estimated Billable cost	7,00,000
% completion	36%
Earned $ Value	2,54,245
Planned $ Value
Estimated Billable cost	7,00,000
Number of days worked	3	( Mon- Wed)
Planned $ Value	3,00,000
('700000/7* No of Hrs worked)

Cost variance - Negative mean Projects are running by Excess cost

Cost variance
Actual Cumulative man Hrs incurred till date (Hr)	9,500
Additional Man hr	2,040
Total Man Hr	11,540
Estimated Man hr	15,000
Estimated Billable cost	7,00,000
Rate / HR	47
Actual cost	5,38,533
( Actual man hr -11540* rate / hr ( 47)
Cost variance	Earned $ value - Actual labour cost ( as per Formula - Standard costing)
Earned $ Value (a)	2,54,245
Actual cost(b)	5,38,533
Cost variance (a-b)	-2,84,288

g) answer G is basically based on above 2 answer . Eventhough I have explained all sources again below for easy reference

g)	How many actual man hrs
	Contract to complete	21,200
	$ 20,000+ $1200 ( Additional Installation)
	Estimated Man hr	15,000
	Current rate per work(a)	1.41	('21200/15000)
	Hours left to earned(b)	9,555	('15000-5445)
	Remaining Hrs( a*b)-c	13,504
	How many actual man hrs( a)*( c)	19,086
	Estimated Man hr	15,000
	Earned man Hrs	5,445	('15000*36.3%)
	% completion	36.30%
	Estimated Man hr	15,000

EAC calculation based on CPI ( Index ) so used CPI formula to derive below number.

Earned Value and Actual Cost already calculated as above .  

h)	EAC ( Estimated of Completion)
	To calculated EAC , we need to calculated Index
	CPI ( Index)	Earned $ Value	2,54,245
		Actual cost(b)	5,38,533	0.47
	Estimated Billable cost-$	7,00,000
	EAC ( Estimated of Completion)-$	14,82,715	700000/0.47