PMP Certification Mix Questions Test 4

Question : 24 of 70

Marks: +1, -0

Assume that your company is working under a fixed-price-incentive contract. It has a target cost of

\$

100,000, a target profit of 10%, a price ceiling of

\$

120,000, and a share formula of 80/20. Assume that your company completes all of the work but has actual costs of

\$

110,000. What is the final value of this procurement?

Solution:

In this situation, there is a

\$

10,000 overrun from the target costs. Applying the 80/20 share ratio, the seller's share of the overrun is 20% of

\$

10,000 or a minus

\$

2,000 in earned fee. The final value of this procurement is

\$

110,000 in costs, plus a seller fee of

\$

10,000 less

\$

2,000, or

\$

8,000 for a final price of

\$

118,000.

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