Project Management Professional (PMP) Exam Practice – Question1700

Assume that your company is working under a fixed-price-incentive contract. It has a target cost of $100,000, a target profit of 10%, a price ceiling of $120,000, and a share formula of 80/20. Assume that your company completes all of the work but has actual
costs of $110,000. What is the final value of this procurement?


A.
$120,000
B. $132,000
C. $118,000
D. $110,000
$120,000
B. $132,000
C. $118,000
D. $110,000

Correct Answer: C

Explanation:

Explanation:
In this situation, there is a $10,000 overrun from the target costs. Applying the 80/20 share ratio, the seller’s share of the overrun is 20% of $10,000 or a minus $2,000 in earned fee. The final value of this procurement is $110,000 in costs, plus a seller fee of
$10,000 less $2,000, or $8,000 for a final price of $118,000.