question in procurement management knowledge area

Submitted by vijayavadrevu on Sun, 03/10/2013 - 06:26

 Question:

A fixed price plus incentive fee (FPI) contract has a target cost of $130,000, a target profit of $15,000, a target price of $145,000, a ceiling price of $160,000 and a share ratio of 80/20. The actual cost of the project was $150,000. How much profit does the seller make?

 

Answer given is $10,000

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

pan_ajay

Sun, 03/10/2013 - 07:04

Since Actual cost is more than target cost so there would be penalty
Difference between target cost & Actual Cost
= 130000 - 150000
=-20000

Seller's ratio = 20% of penalty
= 0.2 * 20000= -4000

Profit = 15000 - 4000 = 11000

Seller will get = 150000  + 11000 = 161000

as celing price is less than so seller will get only the ceiling price= 160000

i.e. profit  of 10000( 160000 - 150000)

vijayavadrevu

Sun, 03/10/2013 - 07:14

 Thank You very much Ajay

 

Regards

Vijaya

sspawar

Sun, 03/10/2013 - 07:29

 it can be done 

by PTA formula also

 PTA =[(CP-TP)/BSR]+TC,                                 ---BSR means only decimal ratio of Buyer

modify formula

actual cost to seller (COST) =    [(PRICE to buyer - TP)/BR] +TC 

150000= [(PRICE - 145000)/0.80] + 130000

(PRICE - 145000)/0.80 =150000-130000

PRICE - 145000 = 20000 x 0.80

PRICE = 16000+145000 = 161000

It is 1000 more than (CP =160000)

hence price (payment to seller)  will be maximum only = 160000

thus 

profit to seller will be 160000-150000= 10000

-----------------------------------------------------------------

in other way by cpif formula

SELLERS PAYMENT = TP +/- BR < UCP/>LCP          --  ---BR means amount of Buyer

BR  in amount = 80% of difference of actual cost - target cost = (150000 - 130000) *0.80 = 16000, it is more than the target cost , hence will be added 

SELLERS PAYMENT = 145000+16000 = 161000

 

It is 1000 more than (uCP =160000)

hence price (payment to seller)  will be maximum only = 160000

thus 

profit to seller will be 160000-150000= 10000

 

 

vijayavadrevu

Sun, 03/10/2013 - 07:42

 Thank You so much Sir