Estimate at Completion (EAC)

Correct Answer: EAC = AC + [(BAC - EV) / (CPI × SPI)]

The correct formula for calculating the Estimate at Completion (EAC) when we assume future cost performance will improve is:

EAC = AC + [(BAC - EV) / (CPI × SPI)]

This formula is used when we expect the project's cost performance to improve in the future. Here's why this is the best answer:

1. It incorporates both the Cost Performance Index (CPI) and Schedule Performance Index (SPI), which provides a more comprehensive view of the project's performance.
2. By multiplying CPI and SPI, we account for both cost and schedule efficiency, assuming they will improve.
3. This formula is more optimistic than using only CPI, as it factors in potential schedule improvements.

The other formulas are not appropriate for this scenario:

EAC = AC + [(BAC - EV) / CPI]: This formula assumes that future cost performance will continue at the same rate as the current CPI, not accounting for improvement.

EAC = BAC / CPI: This formula is used when we expect the current cost performance to continue for the remainder of the project, not when we expect improvement.

EAC = AC + (BAC - EV): This formula assumes that all future work will be completed exactly as budgeted, which doesn't align with the expectation of improved performance.

In summary, when future cost performance is expected to improve, we use the formula that incorporates both CPI and SPI to provide a more optimistic and comprehensive estimate of the project's completion cost.

Correct Answer: $120,000

The Estimate at Completion (EAC) is a forecast of how much the entire project will cost, given the project's performance up until now. In the question, the Cost Performance Index (CPI) is 1, which means the project is exactly on budget. If the project continues at this performance, the EAC will be the same as the Budget at Completion (BAC), which is $120,000. Therefore, the answer $120,000 is correct. The other answers are wrong because they suggest that the project will go over budget, which is not indicated by the information provided in the question.

Correct Answer: EAC = BAC / CPI

The best formula to represent the Estimate at Completion (EAC) assuming the current cost variance will persist is EAC = BAC / CPI.

Step 1: Identify the given information:
BAC (Budget at Completion) = $400,000
AC (Actual Cost) = $150,000
EV (Earned Value) = $120,000

Step 2: Calculate the Cost Performance Index (CPI):
CPI = EV / AC = 120,000 / 150,000 = 0.8

Step 3: Apply the formula EAC = BAC / CPI:
EAC = 400,000 / 0.8 = $500,000

This formula is correct because it assumes that the current cost performance (represented by the CPI) will continue for the remainder of the project. It takes into account the current efficiency in cost utilization and projects it to the end of the project.

The other formulas are incorrect for this scenario:

EAC = AC + (BAC - EV) assumes that future work will be completed at the planned rate, which does not align with the given condition that the current cost variance will persist.

EAC = BAC + (AC - EV) is not a standard EAC formula and does not accurately represent the project's performance.

EAC = AC + [(BAC - EV) / (CPI * SPI)] incorporates the Schedule Performance Index (SPI), which is not relevant when only considering cost variance persistence.