Question

Cost Plus Incentive Fee Calculation. In this cost plus incentive fee contract, the cost is estimated at $210,000 and the fee at $25,000. The project is complete, and the buyer has agreed that the costs were, in fact, $200,000. Because the seller's costs came in lower than the estimated costs, the seller shares in the savings: 80% to the buyer and 20% to the seller. Calculate the final fee and final price.

The answer is :

Fee $27,000
Price: $227,000

Answer 1

Estimated Cost: $210,00)

Actual cost; $200,000

Therefore, cost saving= Estimated cost - Actual Cost= $210,000-200,000 = $10,000

It is agreed that 80% of the cost saving will be passed on to the buyer which is 80% of $10,000= $8,000

Therefore, cost to be added to the fee (Sellers share)= $10,000-$8,000 = $2,000

Therefore, Total Fee= Agreed fee + seller's share of cost savings = $25,000+$2,000 = $27,000

Total Price= Actual Cost + Total Fee = $200,000+$27,000 = $227,000