Math Qn

Submitted by BK on Sun, 05/12/2013 - 16:06

 What is the target cost on the following contract:

PTA=1800,000; Target profit: 150,000; Target price: 1700,000; ceiling price: 1850,000.
Share ratio: 75% to 25% (Buyer to seller) for overruns, 60% to 40% for underruns.
 
1. 1600,000
2. 420,000
3. 1800,000
4. 200,000
 
I am confused for sharing ratio which one to use?
How we come to know that it is overrun or underrun befor calculation?
 
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Geethika

Sun, 05/12/2013 - 18:27

Coz  PTA is the point at which Seller assumes all costs going forward.

Its seller risk when costs exceed (overrun) PTA value

BK

Mon, 05/13/2013 - 06:29

Thanks, I understand that, my qn was do I have to compare PTA with Target price for determining sharing ratio?

here we have 2 sharing ratio.

Geethika

Mon, 05/13/2013 - 07:42

we need not determine sharing ratio...Its generally agreed-to by either parties consent during contract signing up, and given to us in the Q as cost overruns sharing

cost underruns % given in the above Q is made to confuse us..

BK

Mon, 05/13/2013 - 08:34

 got it..thanks a lot.

cnpatilpmp2012 (not verified)

Mon, 05/13/2013 - 07:42

I think it should be C i guess as the Target price plus profit = 1850,000 which is ceiling price , so in the PTA calcualtion it becomes and PTA=TC, so 1800,000.


 


Regards


CN Patil

BK

Mon, 05/13/2013 - 08:34

 ans is A

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crushPMP

Mon, 05/13/2013 - 12:35

BK - can you please let us know how to solve this problems. I have left PTA

BK

Mon, 05/13/2013 - 14:17

 Just remember this formula:

PTA= TC+ CP-TP/BSR (BSR= Buyer share ratio and it is only applicable for cost overrun  ie:75% in this case).

 

Now: just adding values into formula

1800,000= TC (?)+ 1850,000-1700,000/.75

TC= 1600,000

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crushPMP

Mon, 05/13/2013 - 14:25

ah, if it's only this formula and then plug-&-chug then I am going with learning this formula. Easy points, I would say.