Point of Total Assumption (PTA):

Analytical questions
from Procurement Management knowledge area
Will you be surprised to see questions related to
calculations from the Procurement Management knowledge area in PMP exams? Don’t
worry; they are all simple use simple logic. To make it understandable here are
some sample questions with details.


Q1: A cost-plus-percentage-cost (CPPC) contract
has an estimated cost of $120,000 with an agreed profit of 10% of the costs.
The actual cost of the project is $130,000. What is the total reimbursement to
the seller?






$143,000
$142,000
$140,000
$132,000





Q2: A cost-plus-incentive-fee (CPIF) contract
has an estimated cost of $150,000 with a predetermined fee of $15,000 and a
share ratio of 80/20. The actual cost of the project is $130,000. How much profit
does the seller make?






$31,000
$19,000
$15,000
none of the above





Q3: A
fixed-price-plus-incentive-fee (FPI) contract has a target cost of $130,000,
a target profit of $15,000, a target price of $145,000, a ceiling price of
$160,000, and a share ratio of 80/20. The actual cost of the project was
$150,000. How much profit does the seller make?






$10,000
$15,000
$0
$5,000



Q4: A fixed-price-plus-incentive-fee (FPI) contract has a
target cost of $150,000, a target profit of $30,000, a target price of $180,000,
a ceiling price of $200,000, and a share ratio of 60/40. The actual cost of the
project was $210,000. Calculate the final fee and the final price.
Q5: A fixed-price-plus-incentive-fee (FPI) contract has a
target cost of $9,000,000, a target profit of $850,000, a ceiling price of $12,500,000,
and a share ratio of 70/30. The actual cost of the project was $8,000,000. Calculate
the final fee and the final price.
Q6: A Cost-plus-incentive-fee (CPIF) contract has a estimated
cost of $210,000, a fee of $25,000, and
a share ratio of 80/20. The actual cost of the project was $200,000. Calculate
the final fee and the final price.


Answers
Q1: Estimated
Cost= $120,000
Actual
Cost= $130,000
Agreed
Profit=10%
Reimbursement
amount= Actual cost+% profit of actual cost=$130,000+(10% of $130,000)= $143,000
Q2: Estimated Cost= $150,000
Predetermined
fee=$15,000
Share
Ratio=80/20( 80 is for the Buyer and 20 is for the seller)
Actual
Cost= $130,000
Saving=Estimated
Cost-Actual cost=$20,000
Profit to seller is Predetermined fee + (Share ratio
of seller*Savings) = $15,000+(20%*$20,000)= $19,000
Q3: Target
Cost=$130,000
Target
Fee=$15,000
Target
Price=$145,000
Ceiling
Price=$160,000
Share
Ratio=80/20( 80 is for the Buyer and 20 is for the seller)
Actual
Cost=$150,000
Here,
the actual cost is less than the ceiling price. So to calculate the profit,
consider the actual cost.
Profit=(Actual
cost-Target Price)*Seller Ratio=($150,000-$145,000)*20%= $10,000
Q4: Target
Cost= $150,000
Target
Fee=$30,000
Target
Price=$180,000
Ceiling
Price=$200,000
Share
Ratio=60/40(60 is for the Buyer and 40 is for the seller)
Actual
Cost=$210,000
Here
Actual cost is more than the target price and also higher than the ceiling
price. So the seller is in
trouble. Let’s see how much he gets?
Final
Fee=((Target cost-Actual Cost)*Seller ratio)+Target
fee=(($150,000-$210,000)*40%+$30,000=(-$60,000*40%)+$30,000= -$24,000+$30,000=$6,000
Final
Price=Actual cost+Final Fee=$210,000+$6,000=$216,000. But this is more than the
ceiling price. So the final price is $200,000
J
Q5: Target
Cost= $9,000,000
Target
Fee=$850,000
Target
Price=$9,850,000
Ceiling
Price=$12,500,000
Share
Ratio=70/30(70 is for the Buyer and 30 is for the seller)
Actual
Cost=$8,000,000
Here
Actual cost is less than the target price and also lesser than the ceiling
price. Let’s see how much seller
gets?
Final
Fee=((Target cost-Actual Cost)*Seller ratio)+Target fee=(($9,000,000- $8,000,000)*30%+$850,000=($1,000,000*30%)+$850,000=
$300,000+$850,000=$1,150,000
Final
Price=Actual cost+Final Fee=$8,000,000+$1,150,000=$9,150,000.
Q6: Estimated
Cost= $210,000
Predetermined
fee=$25,000
Share
Ratio=80/20(80 is for the Buyer and 20 is for the seller)
Actual
Cost= $200,000
Saving=Estimated
Cost-Actual cost = $10,000
Final
Fee= (Saving*Seller Ratio)+Predetermined fee=($10,000*20%)+$25,000=$2,000+$25,000=
$27,000
Final Price=Actual cost+Final
Fee=$200,000+$27,000=$227,000
Point of Total Assumption (PTA):
This applies to only Fixed price incentive fee contracts and refers
to the amount above which the seller bears all the loss of a cost overrun. This
happens due to mismanagement. Seller will sometimes monitor their actual cost
against the PTA to make sure they are still receiving a profit for completing the
project.
Formula is PTA=((Ceiling Price-Target Price)/Buyer’s share ratio))+
Target Cost