The seller delivers a fixed price plus incentive fee project at a cost of $90,000. The terms of the contract are a ceiling price of $120,000, a target cost of $ 100,000, a target profit of $10,000, and a target price of $110,000. The share ratio is 70/30. The final price (your total reimbursement) is _________.
A.
$93,000
B.
$96,000
C.
$97,000
D.
None of the above
Correct answer is D
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does anyone has complete question in pdf format?
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According to the terms of the FPIF contract: target cost = $100K, target profit = $10K, and thus the target price = $100K + $10K = $110K. But the seller managed to deliver at an actual cost of $90K. The seller is guaranteed to receive his target profit of $10K as per FPIF understanding, therefore the actual or buyer final price is $90K + $10K = $100K. The share ratio and the ceiling price have no effect in the calculations here because the actual cost did not increase higher than the target cost.
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