Q82. Write short notes on cost plus contract.
Ans. Under cost plus contract, the contract price is ascertained by adding a percentage of profit to the total cost of work. Such type of contract are entered into when it is not possible to estimate the contract cost with reasonable accuracy due to unstable condition of material, labour, services.
- The contract is a assured of a fixed percentage of profit. There is no risk of incurring any loss on the contract.
- It is useful especially when the work is to be done is not definitely fixed at the time of making the estimate.
- Contractee can ensure himself about ‘the cost of the contract’, as he is empowered to examine the books and documents of the contractor to ascertain the veracity of the cost of the contract.
The contractor may not have any inducement to avoid wastage and effect economy in production to reduce cost.