Point Of Total Assumption Formula
If i calculate this with ceiling price target price buyer s share ration target cost i get. In addition once the costs on an fpi contract reach pta the maximum amount the buyer will pay is the ceilin.
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Buyer s price at pta target price pta target cost x bsr.
Point of total assumption formula. The cp is typically 115 to 120 of the target cost. Pta helps seller identify at which point on project cost curve would the buyer stops contributing for cost overrun. Ceiling price cp.
To calculate the seller profit at any point simply use the equation. The formula for pta is pta ceiling price target price buyer s share ratio target cost. Pta ceiling price target price buyer s share ratio target cost.
Therefore the pta is also a risk trigger. 1 300 000 1 500 000 80 000 1 125 000 correct answer. Seller s share ratio sr.
The point of total assumption is a point on the cost line of the profit cost curve determined by the contract elements associated with a fixed price plus incentive firm target contract above which the seller effectively bears all the costs of a cost overrun. Target cost tc. 1 we also know that the total price that the buyer pays at the pta is also known as the ceiling price.
Actual cost ac. Seller profit or loss buyer s price actual cost buyer s price target price buyer s share of cost overrun. Target fee tf.
1 200 000 1 000 000 0 8 100 000 350 000. Now we are ready to discuss point of total assumption. Let us first derive this formula.
We will use the following abbreviations for the ensuing discussion. Point of total assumption ceiling price target price buyer s share ratio target cost the video below explains the concept succinctly using an example. Which is the pta point of total assumption break point of the project.
Formula vi point of total assumption formula. Basically it helps you calculate the amount above which the seller has to bear all the loss of a cost overrun. Point of total assumption pta.
It is actually the point of total cost assumption or the cost beyond which the buyer will not pay a cent more to the seller. Pta applies only to fixed price incentive fee contracts. Beyond the point of total assumption the seller s profitability decreases and their initiative and interest to complete the project may diminish too.
Pta 1 300 000 1 100 000 0 80 1 000 000 1 250 000. Since target cost target fee target price. In other words when actual cost reaches pta buyer pays the ceiling price.
Target price tp. Anybody knows how to get to the correct answer. The seller bears all of the cost risk at pta and beyond due to a dollar for dollar decrease in profit beyond the costs at the pta.
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