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)

In a cost-plus contract, you pay the actual direct costs plus a markup on those costs. Here, the direct costs are 60,000 and the markup is 20% of that amount. 20% of 60,000 is 12,000. Adding that to the direct costs gives 60,000 + 12,000 = 72,000. This is the base amount due before any bonuses. (Bonuses, if any, would be separate.)