CPIF
Submitted by vijayavadrevu on Sun, 06/02/2013 - 18:27
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. If the project comes in at US$ 80,000, what would be the cost of the total contract?
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R3HAB2
Mon, 06/03/2013 - 02:34
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SCORDO MOCK 11, Q43
This looks similar to the Scordo mock 11 - Q43 that I just worked. In it there were 3 components as follows:
- Actual cost = $80,000 +
- 8% incentive fee calced on the targeted cost = $8,000 +
- 25% sharing on the $20,000 difference saved = $5,000
Total = $93,000
Please do check my solution against his as I was not comfortable with it since it didn't quite fit the standard formula of PTA = Tgt. cost +(Ceiling Price - Target Price)/(Buyer's percentage share)
vijayavadrevu
Mon, 06/03/2013 - 03:24
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I have solved the problem as
I have solved the problem as follows and arrived at $138,000 which was wrong. please help me in understanding whether this is right way of doing i.e., taking target profit as 8% of target cost
Incentive = (Target cost - actual cost)* vendor's share ratio
= (100000-80000)*25/100= 5000
overhead fee=target profit + incentive
=5000+(8*100000)/100=13000
contract cost = overhaed fee +actual cost
=13000+80000=93000
Hwever the answer is $93000
cnppmp
Mon, 06/03/2013 - 11:49
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Correct that's correct, 93000
First calculate Final Fee:
Final Fee= (Target cost -actual cost) x 25% + Target Fee (8% of 100000)
= (100000-80000) x 0.25 + 8000
=20000 x 0.25 + 8000
= 5000 + 8000
= 13,000
So, Final Price = Actual cost + Final Fee
= 80000 + 13000
= 93000
Regards
CN Patil