# Que No. 139 simulation test paper # 6. Please Help

Discussion in 'PMP' started by anujkumar.singh(3625109), Aug 11, 2018.

1. ### anujkumar.singh(3625109) Active Member Alumni

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Hi,

In the below questions all answers seem wrong to me and my answer comes as 53750(45000+8750). [0.25*35000=8750 Incentive fee]

In a negotiated cost plus incentive fee (SPIF) contract, the following figures were finalized: a target cost of \$355,000, a target fee of \$45,000, and a sharing ratio of 75/25. If the actual cost of the project is \$320,000, what will be the final fee to the seller?
\$36,250
\$8,750
\$35,000
\$45,000
Correct Option: B

EXPLANATION

As the cost of the project is lower than expected, the seller will receive their \$45,000 fee plus \$25% of the savings between \$355,000 and \$325,000 (\$25,000 x 25% = \$7,500). \$45,000 + \$7,500 = \$52,500.

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2. ### anujkumar.singh(3625109) Active Member Alumni

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Also to mention that since i didn't find my answer in the list I selected D as the answer ie 45000, which is wrong as per the test.

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3. ### Sreidhar D(1820) Well-Known Member Alumni

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HI ANUJ,
I agree with you that the question seems incorrect. However the calculation you have shown also seems incorrect.
TARGET COST- \$355,000
ACTUAL COST- \$320,000
SAVINGS-355000-32000= \$35000 .So, sharing ratio is 75/25- hence 25% of 35,000 is 8,750.
Since this is given as option B, the question should have been" What is the final incentive to be paid to the seller? "
I shall communicate to Simplilearn of this correction in the question.

Thanks
Sridhar.D

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4. ### tim jerome Well-Known Member Trainer

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I've seen variations of questions that ask "what is the total fee" as well - and that assumes you understand that
the 'total fee' equals the seller's share of savings (or overrun) and the target fee. This would be the 8,750 plus the original 45,000.

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