TOPIC: Point of total assumption (PTA)

Hello everyone,

I hope it is OK to post a question I've come across in another mock exam which I've done before tackling the Prepcast exams. If not, my apologies and feel free to remove the post.
Any advice on the below would be much appreciated, thank you.

In a project, a cost incentive contract has been awarded to a contractor with the following parameters:
Target cost: $1,000,000
Target contractor fee: $100,000
Cost benefit sharing ratio: 80%/20%
Price ceiling: $1,200,000

What is the point of total assumption (PTA, breakpoint) of the project?
a. $1,000,000
b. $1,100,000
c. $1,125,000
d. $1,200,000

The answer key says it is c, however following the formula PTA = target cost + (ceiling price – target price) / % share of cost overrun = $1,000,000 + ($1,200,000 - $1,100,000) / 0.8 = $1,375,000 , I don't seem to arrive at any of the answer options listed.

Am I missing a trick here? Perhaps something to do with the contractor fee?

Hi Pascal,

the formula is correct, as well as the way you combined the target contractor fee and cost to get the target price.
The only thing you may be missing here is the right operator precedence to follow in the formula. In fact, starting from the formula, you should compute it as follows, starting from the operations in brackets:
PTA = $1,000,000 + [($1,200,000 - $1,100,000) / 0.8] = 1,000,000 + [100,000 / 0,8] = 1,000,000 + 125,000 = 1,125,000
which leads you to the correct answer, option c.

Gabriella

P.s.: would you mind sharing information about where you found this sample question, so that we can give proper attribution? Thank you.

Gabriella beat me to it. It's that whole arithmetic thing.

Harry

Thank you so much, what a rookie mistake! Sure, the question is from www.oliverlehmann.com/contents/free-down...Sample_Questions.pdf