TOPIC: 175 Oliver Lehman (question 46)

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?
o $1,000,000
o $1,100,000
o $1,125,000
o $1,200,000
Can someone explain to me why C is the correct choice? Thanks in advance!

the target price for the given information is the sum of the target cost plus the target fee i.e 1000000 +100,000 =1,100,00 then the equation will be applicable as follow
PTA ={ (ceiling price - target price) /buyer ratio} + target cost
PTA=( 1,200,000 - 1,100,000)/0.8 +1000,000
{100,000/0.8} + 1000,000 = 1,125,000

please not that a price is referred to the amount will be payed by the buyer while the cost is referred to the amount will be payed by a seller. in another word the price is how much a buyer will pay to buy the service/ product/ result while the cost is how much the it will be costed by the seller