Management homework help

Question 2

Wedding cost estimation: Given the following information, calculate the estimated costs for a wedding with 250 guests and a bridal party of six, using the methods indicated. Show your work.

Note that members of the bridal party are already counted as guests, you don’t need to add them twice.

Parametric estimate

Bottom-up estimate

Analogous cost estimate

You will probably notice some differences in the estimated values. Are these differences significant? What might cause the differences? If you were estimating a significant project in the future, which method(s) would you use and why?

Wedding Cost Estimates

Item

Dollars

Groom’s brother’s wedding, last year, 175 guests, similar venue and style

$20,300

Catering

$65 per person

Photographer

$1,500

Rental of hall

$500

Clothing, bride

$2,000

Clothing, groom

$750

Flowers

$800

Other décor items

$500

Cake

$500

Gifts for bridal party

$80 each

Wedding planner

$2,000

Wedding planner’s estimate of typical cost for this kind of wedding

$10,000 plus $75 per guest

Question 3

Cost reimbursable contract calculation.

A contract calls for a total payment of $800,000 with a guarantee. Essentially the contractor is guaranteed to make at least $200,000 above his costs. If the contractor can demonstrate his costs exceed $600,000, the project will pay the difference, with a $50,000 ceiling on the overage. The contractor demonstrates he spent $623,000. How much (gross) must the project remit to the contractor?

Another option for the same contract has the contractor guaranteed to be paid his costs plus 20%, for costs that exceed $600,000. With the same initial assumption—guarantee of $800,000 gross payment (no requirement to itemize costs), but if the contractor can show that costs exceed $600,000, the project will pay $800,000 plus the costs that exceed $600,000, plus 20% of those excess costs, with a ceiling of $900,000 gross. The contractor demonstrates he spent $623,000. How much (gross) must the project remit to the contractor?

Under option 3.2, at what dollar amount of total costs would the contractor be assuming all of the excess costs beyond that point?

In which option did the project assume more of the risk of a cost overrun? Explain.