# Why Target price in this question

Hello,

I have  solved question from a leading PMP book.

Your company has a cost plus incentive fee contract with the vendor. The contract has the target cost of \$200,000 and a target fee set at 25% of the total. If the target price is \$300,000, the share ratio  between buyer and the vendor is set at 70/30. and the actual cost of the contract is \$350,000. How much does the vendor make on this contract?

solution:

Find the incentive:

Incentive= (Target cost-actual cost)x vendor share percentage

= (200,000-350,000)x30/100 = -\$45,000

= (0.25x200,000)+-45,000=\$5000

= 350,000+5000= \$355,000

I have two doubts on this question:

1.  what is the use of " target price \$300,000" in this question?

2. Question asked " how much does the vendor make on this contract?" . Does it mean the profit for the contractor?  In that case ; will the answer be \$5000 instead of \$355,000?

Kindly help

### What are the options given

What are the options given ?

it seems 300000 is a upper cap price (cilieng price)

otherwise it has no meaning.

and if it is UCP then contractor will make

300000-350000  = -50000 (loose 50000) , no need of above calculation.

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### Dear Pawar,The options

Dear Pawar,

The options given are

A.\$ 300,000

B.\$350, 000

C. \$355,000

D.\$ 415, 000

As you said  if it is the ceiling price  the contractor will incur a loss of \$ 50 000

Now I have another quetion:

Can we expect unnecessary information in questions like this? and if it is so , wont the answer be 5000(355 000-350 000)?