A cost plus contract calls for the contractor to receive direct costs for labor and materials, and a markup of 40% of direct costs. The contractor is also to receive a bonus of 10% of savings if total cost to the owner is less than $100,000, and a bonus of $500 per day if the project is completed early. Final costs for direct labor and materials are $60,000. The project is completed 5 days early. What is the total amount due the contractor?
The total amount due the contractor is between $90,000 and less than $95,000.
To calculate the total amount due the contractor, we first determine the direct costs, then apply the markup, and finally include the bonuses for savings and early completion. The calculations yield a total of $92,500, which falls within the specified range.
This choice is incorrect because the calculated total due to the contractor significantly exceeds $85,000. The direct costs alone amount to $60,000, and even with the markup and bonuses, the total cannot be less than $85,000.
This option is incorrect as well. The calculations show that the total amount due, factoring in the 40% markup on direct costs and the bonuses, results in a figure above $90,000. Therefore, it cannot fall within this range.
This is the correct choice. The total amount due is calculated as follows: direct costs of $60,000 plus a 40% markup equals $84,000, and with a $5,000 bonus for completing 5 days early, plus a 10% savings bonus of $3,000 (since total costs are less than $100,000), the final total amounts to $92,500.
This choice is incorrect because the total due, after adding all applicable costs and bonuses, is calculated to be $92,500, which is less than $95,000. Therefore, this option does not reflect the final amount due.
The total amount due to the contractor is determined through careful calculation of direct costs, the markup, and bonuses for early completion and savings. With a final figure of $92,500, the answer clearly lies within the range of between $90,000 and less than $95,000, underscoring the importance of accurate budgeting and cost management in contract scenarios.
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