procurement knowledge area -- profit margin

Submitted by vijayavadrevu on Sun, 03/10/2013 - 18:54

 Hi,

The following is the question:

A buyer has standard profit percentages that it offers its sellers for each type of contract. If Cost Plus Percentage of cost contract has 6% profit margin and a firm fixed price contract has  a 12% profit margin, then the target profit margin on a cost plus incentive fee contract might be ---

Options given are 4%, 8%, 12%, 15%

Answer is given as 8% 

 

How is 8% arrived at??

Forums: 
PMP / CAPM exam Question bank
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sspawar

Mon, 03/11/2013 - 04:22

 Hi Vijay

from where you got this question and what is explanation?

Concept may be that FIx price - profit margin may be considered as upper cap limit for cpif.

While percent profit of CPPC may be taken as lower cap limit of cpif.

For target fee , of cpif profit margin should fall in between these 2 boundaries.

In options only 8% is a value which is within this, rest of values are larger, or equal, or lesser than this range (6 to 12)

you may refer my blog post dated 14/08/12 at er-sspawar.blogspot.in for understanding UCL/LCL

vijayavadrevu

Tue, 03/12/2013 - 12:48

 

Sir,

 

I came across this question in one of the test banks. Thank you for your explanation

 

Regards

Vijaya