Cost plus incentive fee contract calculation

Submitted by falcios on Tue, 08/06/2013 - 03:16

How would you find the solution for this question?

Your company has a cost plus incentive fee contract with a vendor. The target cost is $150,000. The target fee is $20,000, and the share ratio between buyer and vendor is set at 80/20. The maximum fee is $30,000 and the minimum fee is $5,000. If the actual cost is $190,000, what fee does your company have to pay the vendor?

Thanks for the help

Forums: 
PMP / CAPM exam Question bank
  • Log in to post comments
  • 1066 reads

pmbrett

Tue, 08/06/2013 - 05:37

Some notes for everyone:

CPIF contains a max fee and a min, unlike FPIF which  contains PTA and a ceiling price. (just so you can differentiate)

Buyer share ratio/seller share ratio

In this case you want the seller share ratio since you care about how much fee you should pay them (.20).

1) 150K-190K= -40K (the vender blows and is overruning, thats why its negative)

2) -40K * .20 = -8K (multiply the over or under run amount by the seller share ratio)

3) -8K + 20K = 12K (target fee + the result of step 2)

The fee you would pay is $12K. The total you would pay is $202K (190K +12K)

 

The max and min are useful in real life (it limits the incentive/loss range). Since 12K is within the range, the min and max figures are extraneous bullshit I believe.

 

Anyone else want to help?

 

I seriously doubt this type of question would be on the exam...

falcios

Tue, 08/06/2013 - 10:23

Thanks for the info. The min/max was a bit confusing.