## Help with this question

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coolpmp69
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Posts: 282
Joined: Mon Nov 17, 2014 8:55 pm

### Help with this question

I found the below question on one of the online practice test. Can someone explain as to how to solve this type of problems for pmp exam....thanks.

You are currently negotiating a FPIF contract. The target cost = \$400,000 with a target profit of 15%. The incentive split has been decided as 60/40. As of today, the actual costs are \$350,000. What is the actual profit?
a. \$80,000
b. \$20,000
c. \$40,000
d. \$10,000
signor_rk
Contributor
Posts: 182
Joined: Wed Jun 18, 2014 3:47 pm

### Re: Help with this question

Option # A)\$80,000

Justification:

Calculation for Actual Fee/Profit:
Given figures ,
Target Cost = \$ 400,000
Target Profit = 15% i.e., 0.15* \$400,000 = \$ 60,000
Actual Cost = \$ 350,000
So , Savings amount due to Cost under run = \$ 400,000 - \$ 350,000 = \$ 50,000
Profit Sharing Ratio = 60:40
So, Sellers share = 0.40 * \$ 50,000 = \$ 20,000
Therefore, Actual Profit = \$ 60,000 + \$ 20,000 = \$ 80,000
Regards ,

Ranjit
coolpmp69
Contributor
Posts: 282
Joined: Mon Nov 17, 2014 8:55 pm

### Re: Help with this question

Thanks Ranjit. That's very helpful and easy to u'stand
signor_rk
Contributor
Posts: 182
Joined: Wed Jun 18, 2014 3:47 pm

Welcome ....
Regards ,

Ranjit