Except for Target Price,I understand all the parameters in the following scenario. What role would Target Price play in such a scenario? Or it's just a made-up term to check your knowledge?
You had contracted a Fixed Price Incentive Fee contract with the seller with the following parameters:
a) Target cost: $500,000 b) Target profit: $50,000 c) Target price: $550,000 d) Ceiling price: $600,000 Share ratio: 80/20 Saving Changes...
Target Price is not a made up term. It is basically the combination of the cost to the seller and the profit the seller wishes to make on the FPIF contract. So, assuming the seller's costs are $500K, the target price is what the buyer would be paying.
Why it is useful knowing it is the Point of Total Assumption formula is Target Cost + (Ceiling Price - Target Price)/Buyer Share
Kiron Saving Changes...
JeAnn WatsonGeorge Town, Other (Non U.S.), Cayman Islands
As Kiron said, it's what the buyer would be paying, which is target cost + target profit. Saving Changes...
Sachin AggarwalCountry Sales Manager (IOT, Japan)| BlackBerry Tokyo, Japan
Hi Saf
Target Price = Target Cost + Target Profit
If we know any two of the above parameters, the third can be calculated. Having all three given in a problem is redundant information, but doesn’t hurt.
