Contract Types Are Often Associated with Two Broad Categories: Fixed-Price

question 4

Essay

Contract types are often associated with two broad categories: fixed-price contracts and cost-reimbursable contracts.Briefly identify the factors to consider when determining which type is most appropriate for a planned contract.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as materials or labor directly tied to production volume.

Break-even Sales

The point at which total sales equal total expenses, resulting in no profit or loss.

Fixed Costs

Expenses that do not change with the level of goods or services produced by a business, such as rent, salaries, and insurance.

Variable Costs

Expenses that change in proportion to the activity of a business, such as materials and labor costs that vary with production volume.