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PMI Project Management Professional Practice Question

A project manager is working on a cost-plus incentive fee contract with the following parameters: Ceiling Price = $1,000,000, Target Price = $800,000, Buyer's Share Ratio = 80%, and Target Cost = $750,000. What is the Point of Total Assumption (PTA) for this contract?

$962,500
$950,000
$925,000
$1,000,000

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Answer Description

The correct answer is $1,000,000. To calculate the Point of Total Assumption (PTA), we use the formula:

PTA = (Ceiling Price - Target Price) / Buyer's Share Ratio + Target Cost

Substituting the given values: PTA = ($1,000,000 - $800,000) / 0.80 + $750,000 PTA = $200,000 / 0.80 + $750,000 PTA = $250,000 + $750,000 PTA = $1,000,000

The PTA is the point at which the seller assumes all additional costs beyond this amount. Understanding this concept is crucial for both buyers and sellers in cost-plus contracts, as it helps determine risk allocation and potential profit margins.

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