Cost-Plus Contracts

question 107

Multiple Choice

Cost-plus contracts

• A)refers to contracts that are modified from their original terms during the course of the contract.
• B)refers to contracts where the contractor is not expected to recover all costs incurred in completing the project.
• C)are only used in countries where IFRS rules are followed.
• D)are those for which the contractor is reimbursed for allowable or otherwise defined costs plus a profit markup.

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Definitions:

Economic Profit

The difference between total revenue and total cost, including both explicit and implicit costs, representing excess earnings over the opportunity cost of capital.

MR Curve

The marginal revenue curve, which shows how the revenue from selling one more unit of a good or service changes as the quantity sold changes.

Economic Losses

Occurs when a company's total costs exceed its total revenues, indicating that the business is not efficiently allocating its resources.

Economic Profits

Profits exceeding the opportunity costs of a company's resources, indicating it is generating returns beyond the next best alternative.