Under a cost-plus contract with a 20% markup on direct costs, what would be the base amount due for direct costs of $60,000 before bonuses?

Under a cost-plus contract with a 20% markup on direct costs, what would be the base amount due for direct costs of $60,000 before bonuses?

• A. 72,000
• B. 60,000
• C. 120,000
• D. 84,000

Answer: (A)

Under a cost-plus contract, you’re reimbursed for direct costs plus a markup on those costs. A 20% markup on direct costs of 60,000 adds 12,000 (0.20 × 60,000), giving a total of 72,000 for the direct costs before any bonuses. This reflects the cost plus the specified markup, not just the raw direct costs. The other amounts would require different markups (no markup, 100% markup, or a 40% markup), which doesn’t match the 20% rate in this scenario.