Question

Suppose you are managing a project that is expected to be completed in 8 months at a cost of R10 000 per month. After 2 months, you realize that the project is 30% completed at a cost of R40 000. What is your analysis on the performance of the project after 2 months?

Answer 1

*any doubt please comment

Total budgeted cost of the project = 8* 10,000 = 80,000

The proportionate budgeted cost for 30% completion = 80,000 * 30% = 24,000

Variance = 40,000 - 24,000 = 16000 unfavorable

The costs have overshot by 16,000 for two months when the ideal costs for 2 months must be around R 24,000. There is a variance of around 167% [40,000/ 24,000] which must be investigated by the company for incurring expenses than budgeted. This can be due to increase in variable costs or mismanagement of funds as well.