Price: Amount the seller charges the buyer.
Cost: This is the amount it would cost the seller to create, develop or purchase.
Cost vs. Price
In short, cost is what the business owner pays, price is what the business owner receives, and the larger the difference between the two, the larger the profit.
Target Price: The price the seller estimates that a buyer will buy a product. Estimated price at the beginning of the contract.
Seller thinks that he/she can charge this amount of profit over the Cost and he/she will still be competitive and Buyer will buy the product/service/result from him/her.
Ceiling price: This is the highest price that buyer will pay. This is used to encourage the seller to contain cost.
Target Cost: A target cost is the allowable amount of cost that can be incurred on a product/service/result and still earn the required profit from that product. It is a market driven cost that is computed before a product/service/result is produced.
A budgeted cost is a predetermined cost after a product is in production.
Point of total assumption (PTA): Only relates to Fixed Price Incentive Fee Contracts. It is amount above which the seller bears all the loss of Cost overrun. Costs that go above PTA are assumed to be because of seller's mismanagement, seller's incorrect estimation etc.
PTA = ((Ceiling Price - Target Price)/Buyer's share ratio) + Target Cost.
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. The seller bears all of the cost risk at PTA and beyond, due to a dollar for dollar decrease in profit beyond the costs at the PTA. In addition, once the costs on an FPI contract reach PTA, the maximum amount the buyer will pay is the ceiling price. Note, however, that between the cost at PTA and when the cost equals the ceiling price, the seller is still in a profitable position; only after costs exceed the ceiling price is the seller in a loss position
