Here are some scenarios from the example in your book. Facts of case: Buyer and seller agree on target cost of $1,000 and target seller profit of $80. They agree to share cost savings and cost over runs 80/20 (20 percent to seller). They also agree on a price cap of $1,200. If the actual cost goes over the target ($1,000) the buyer and seller share in the loss: The buyer pays a higher price and the sellers profit is reduced from the $80 target. If the actual cost is less than the $1,000 target, the reverse is true.
In the table the actual cost varies from scenario to scenario (column to column).
| target cost | 1000 | 1000 | 1000 | 1000 |
| actual cost | 1000 | 900 | 1050 | 1200 |
| savings | 0 | 100 | (50) | (200) |
| Supplier % share of savings | 20% | 20% | 20% | 20% |
| Supplier $ share of savings | 0 | 20 | (10) | |
| Target Fee | 80 | 80 | 80 | 80 |
| Supplier Profit | 80 | 100 | 70 | 0 |
| Actual Cost (from above) | 1000 | 900 | 1050 | 1200 |
| Price paid by Buyer | 1080 | 1000 | 1120 | 1200 |
supplier profit = supplier share of $ savings + target fee
price paid by buyer = supplier profit + actual cost