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    Cost Plus Inventive Fee Contract

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    1. Given the following data, develop an appropriate CPIF pricing arrangement.

    Cost Fee
    Target $100 $10
    Optimistic $ 80 $12
    Pessimistic $120 $ 7

    a. What should be the maximum fee?

    b. What should be the minimum fee

    c. What should be the under-target share ratio?

    d. What should be the over-target share ratio?

    e. What is the range of incentive effectiveness?

    2. Given the following data for CPIF pricing arrangement

    Target Cost $200
    Target Fee $ 16

    Share Ratios:

    Under target 80/20
    Over target 85/15
    Maximum Fee $ 26
    Minimum Fee $ 10

    What is the range of incentive effectiveness?

    3. Given the following information regarding a CPIF contract, what would be the final contract price at the different final cost amounts.

    Target Cost $2,000,000
    Target Fee $ 150,000

    Share Ratio:

    Under Target 90/10
    Over Target 80/20
    Maximum Fee $ 240,000
    Minimum Fee $ 60,000

    a. Final cost is $1,000,000

    b. Final Cost is $1,800,000

    c. Final cost is $2,150,000

    d. Final cost is $2,400,000

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    Solution Preview

    1. Given the following data, develop an appropriate CPIF pricing arrangement.

    Cost Fee
    Target $100 $10
    Optimistic $ 80 $12
    Pessimistic $120 $ 7

    a. What should be the maximum fee?
    Maximum fee should be the fee at the optimistic cost. That fee is $12.

    b. What should be the minimum fee
    Minimum fee should be the fee at the pessimistic cost. That fee is $7.
    c. What should be the under-target share ratio?

    Under target share ratio
    Contractor share = Scu = (Pt - Po)/(Ct-Co)*-100=(10-12)/(100-80)*-100=10
    Government share = 100-Scu=90
    under-target share ratio as 90/10.

    d. What should be the over-target share ratio?

    over target share ratio
    Contractor share = Sco = (Pt - Pp)/(Ct-Cp)*-100=(10-7)/(100-120)*-100=15
    Government share = ...

    Solution Summary

    The solution examines the cost plus inventive fee contracts.

    $2.19

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