Correct Answer: C
According to Kerzner, the "point of total assumption" is where the point beyond which the seller is responsible for all the additional costs. (You have to consider all the answer one by one and find out the right answer)If you take the actual cost as 13,250.It's greater than Target Cost by 12,000 - 13,250 = -1250.So, Seller gets incentive of -250 (20% of 1250), actually he has to pay His total profit = 1000 - 250 = 850.So, final price would be 13,250 + 850 = 14,000, its the price ceiling.Hence if he spends more than 13,250 he has to bear the additional cost, since the Buyer will pay only 14,000 (ceiling price).Answer C OR, do this way:If, x is Actual Cost, using Algebraic problem-solving method: we have, 14000 = x + Net Profit = x + (Target Profit + Incentive/Loss)or, 14000 = x + (1000 + 20% of (12000 x)) or, 14000 = x + 1000 + 2400 0.2x = 3400 0.8xso, x = (14000 3400) / 0.8 = 10600 / 0.8 = 13250 (Answer C)