Briar Co. signed a government construction contract
providing for a formula price of actual cost plus 10%. In addition,
Briar was to receive one-half of any savings resulting from the
formula price being less than the target price of $2,200,000.
Briar’s actual costs incurred were $1,920,000. How much should
Briar receive from the contract?

(c) The requirement is to determine the amount that
Briar should receive from the contract. This amount can be
computed as follows:
Actual costs incurred $1,920,000
Multiply by 110% (cost + 10%) × 1.10
Formula price $2,112,000
The target price of $2,200,000 exceeds the formula price of
$2,112,000 by $88,000. Briar is to receive 50% of this amount, or
$44,000, in addition to the formula price. Therefore, Briar is to
receive a total of $2,156,000 ($2,112,000 + $44,000).