TOPIC: PTA (Point of total assumption)

Hello,

According to wikipedia, the PTA is characteristic of a FPIF contract: "The point of total assumption (PTA) is a point on the cost line of the profit-cost curve determined by the contract elements associated with a fixed price plus incentive-Firm Target (FPI) contract above which the seller effectively bears all the costs of a cost overrun." But I found a question on one simulator that implies to use PTA for a CPIF contract, in which the seller is reimbursed for the allowable costs, and if the cost is greater than the original estimated, both buyer and seller share the cost from a negotiated formula. So it doesn't makes much sense to me to use PTA for a CPIF. Here is the question:

You are managing a project for a customer based on a cost-reimbursable target cost contract with the following terms:

Target costs: $ 1,000,000
Fixed fee: $ 100,000
Benefit/cost sharing: 80% / 20%
Price ceiling: $ 1,200,000
Which is the PTA (= point of total assumption, break point) of the project?

Hope yo can help me understand this. Thanks!
Julia

Hi Julia,

I agree with you, it doesn't make much sense to calculate the PTA on a CPIF contract. My guess is that this is a typo in the question, as it specified a Fixed Fee of $100,000 in the figures.

This is a great example of why students should use top quality exam simulator for their exam preparation, in order to avoid confusions like this case. Would you happen to have the source of this mock exam question Julia?

For other students: A great explanation of the PTA is shown in this Youtube Video

Joe, I found it on a free online simulator but I can't find it again, I'm sorry! Thanks for your help! I agree it must be a mistake.

Q16 You are managing a project for a customer based on a cost-reimbursable target cost contract with the following terms:

Target costs: $ 1,000,000
Fixed fee: $ 100,000
Benefit/cost sharing: 80% / 20%
Price ceiling: $ 1,200,000
Which is the PTA (= point of total assumption, break point) of the project?

PTA calculation is = target cost+(ceiling price- target price)*ratio percent

The option given is 1125,000.
if i calculate PTA= 1000,000+ (1200,000-1100,000)*.8 .
If otherwise please help