We just answered a very similar question recently. Reminder: the AAP page has a fantastic search capability and you can find previous answered questions which could possibly provide you the information you need almost instantly.

Also, this sounds like an exam question... we hope it is not (that would violate DAU integrity policy).

The answer is "it depends". If you are going to award an incentive contract (CPIF, FPIF, etc.) then FCOM is used in determining your target cost. By default your ceiling price is calculated based on your target cost, exactly as you described it. See DFARS 215.404-71-4(d)(1)(i).