A cost plus contract provides direct costs plus a markup of 20% of direct costs. If final direct costs are $60,000 and there is a bonus of 15% of savings if total cost to the owner is less than $80,000, and a $1,000 per day early finish bonus for 3 days. What is the total amount due the contractor?

A cost plus contract provides direct costs plus a markup of 20% of direct costs. If final direct costs are $60,000 and there is a bonus of 15% of savings if total cost to the owner is less than $80,000, and a $1,000 per day early finish bonus for 3 days. What is the total amount due the contractor?

• A. Between $75,001 and $80,000
• B. Between $70,000 and $75,000
• C. Between $80,000 and $85,000
• D. Between $90,000 and $95,000

Answer: (A)

In a cost-plus contract, you pay direct costs plus a markup, and incentives are added on top. Start with the direct costs: 60,000. The markup is 20% of direct costs, which is 0.20 × 60,000 = 12,000. So the base amount before bonuses is 60,000 + 12,000 = 72,000. There’s an early finish bonus of 1,000 per day for 3 days, adding 3,000. This brings the subtotal (before any savings incentive) to 72,000 + 3,000 = 75,000. The owner target is 80,000. Since 75,000 is under 80,000, a savings incentive applies: savings = 80,000 − 75,000 = 5,000. The bonus is 15% of savings, which is 0.15 × 5,000 = 750. Add the savings bonus to the subtotal: 75,000 + 750 = 75,750. Total amount due the contractor = 75,750, which falls between 75,001 and 80,000.

In a cost-plus contract, you pay direct costs plus a markup, and incentives are added on top. Start with the direct costs: 60,000. The markup is 20% of direct costs, which is 0.20 × 60,000 = 12,000. So the base amount before bonuses is 60,000 + 12,000 = 72,000.

There’s an early finish bonus of 1,000 per day for 3 days, adding 3,000. This brings the subtotal (before any savings incentive) to 72,000 + 3,000 = 75,000.

The owner target is 80,000. Since 75,000 is under 80,000, a savings incentive applies: savings = 80,000 − 75,000 = 5,000. The bonus is 15% of savings, which is 0.15 × 5,000 = 750.

Add the savings bonus to the subtotal: 75,000 + 750 = 75,750.

Total amount due the contractor = 75,750, which falls between 75,001 and 80,000.