Calculaton qts Procurement 10th Nov

Submitted by dipti1pmp on Mon, 11/10/2014 - 11:49

A project is contracted as a Cost-Plus-Incentive-Fee (CPIF) type of contract. The project is negotiated such that if the final costs are less than expected costs, the sharing formula for cost savings is 75:25. The targeted cost is US$ 100,000 with an 8% incentive fee on the targeted cost. If the project comes in at US$ 80,000, what would be the cost of the total contract?
A. US$ 108,000
B. US$ 93,000
C. US$ 112,000
D. US$ 91,400

can anyone explain with detailed level of explanation?

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Tue, 11/11/2014 - 03:40

http://pmzilla.com/cpif-1 already discussed here.

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Tue, 11/11/2014 - 03:43

Cost-Plus-Incentive-Fee (CPIF) : In such contracts, seller will get repayment of all the money spent plus incentive as per contract.

Here incentive is fixed. it is 8% of the target cost which is 100,000*.08 = 8,000

As per the question the actual cost is 80,000 , so seller also gets this money, 80,000 + 8000 = 88,000

Another part of the question is about sharing, Question says 75% and 25% ratio, and does not say who gets how much share. We have to assume in such cases that buyer gets 75% and seller 25% of saving of 20,000 which mean 5,000

so total money seller gets is 80,000+8,000+5,000 = 93,000

If you take 75% as seller ratio than 88000+15000=103000 is not an option here. which means 25% assumption is correct.